There have been standards in relocation policies for a long time that have served companies and employees well on their relocations. Very often these standards are pre-determined amounts or caps, and they have been accepted by transferring employees.
Now, with changes in real estate, rampant inflation, some of these standardized amounts or caps are no longer enough to serve the needs of relocating employees. Let’s have a look at some of them.
We see, in so many relocation policies, daily meal per diems at $50/day/adult. These per diems are established for things like house hunting trips and final trips of travel. Well, $50/day/adult no longer handles the needs of a relocating employee like it used to, because one of the categories of goods that has experienced the highest inflation is food.
And, these $50 per diems were often created in the 2000s, if not earlier. It could be argued that $50 was too much in the year 2000 for breakfast, lunch and dinner (no alcohol allowed), but it is no longer sufficient now.
Breakfast can easily get to $10-$15, lunch can easily get to $12-20 and dinner can easily be over $35. If you have meal per diems in your policy, All Points is recommending changing the adult per diem to $75/day/adult.
With the cost of gas going to some record highs, it is necessary to look at mileage that you allow in your policy. Many companies establish a given mileage amount in their policy and don’t tie it to either the company’s travel policy or the CRA’s prescribed rate.
We recommend that companies don’t “hard-code” mileage into their relocation policy. Definitely feel free to reference the travel policy or CRA’s prescribed rate.
That way it can fluctuate when prices go up and down. Right now, if you have hard-coded mileage rates in your relocation policy, you have a situation where it doesn’t get as frequently reviewed as does the Travel Policy (because you will always have more travellers than you will transferees/assignees).
Remove any reference to mileage from your relocation policy and tie it to Travel or to CRA.
Capped Relocation Allowances
All Points has spoken about this before, but Capped Relocation Allowances also have some sticky numbers in them as well. We have seen $5,000, $10,000, $15,000, $20,000, $25,000, $30,000, etc. But these numbers weren’t created in a vacuum.
They were created at a point in time based on a specific company decision. What was the basis of that decision? It could have been the result of an investigation of transferee needs at the time. It could have been the result of investigating a year or two years worth of relocation data, to see what people used.
It could have been decisions made in a matrix with considerations such as single, couple, family size, and distance travelled. More likely, the decision on those values was made for budgetary reasons. The company decided that it would create both cost predictability and cost control by creating a number it felt comfortable with.
Well if those numbers have not been reviewed for a while, they are in need of updating. The $5,000 increment is a sticky thing. You don’t have to stay with the $5,000 increment. There is no rule stating that you have to give $10,000.
You can give $12,500. But again, work with your Relocation Management Company to understand the true cost of your relocation program and see what changes need to be made.
Sometimes a study of the real cost of relocation can be an education for hiring managers, for them to loosen the purse strings on Capped Relocation Allowances.
An All Points Case
We recently had a client who relocated people consistently under a cap of $x,000.00. They then had a new recruit tell them flat out that the amount they were suggesting was not nearly enough to handle his needs, what with a slowing housing market, and all the costs that he was going to have. What did some analysis show?
The value was going to be low by $25,000 compared to the actual costs.
What happened? The old value had actually proven to be pretty satisfactory for its employees for many years, including up to 2021. But real estate prices rose during the pandemic, and things were getting tighter for their employees.
Then, their original value also anticipated 30 days in temporary accommodation, when with home sale challenges, and the need to get someone to work asap, temporary accommodation periods were going up.
Finally, in this particular case, the company had never relocated someone from a big town before. They were used to relocating people from relatively small towns in Alberta and Saskatchewan. In this case, their recruit was in Winnipeg which carried a) higher prices resulting in higher commission, then they had seen in the past and; b) a higher commission rate than in Alberta and Saskatchewan.
Does this mean that the company needs to review $15,000.00 for this individual or for all people? The answer is both. First, for this person, as All Points has said elsewhere, he feels less house rich.
He may have had a paper loss or real loss on his home recently. When people feel house rich, they don’t mind so much paying real estate commission on their own. When they feel less house rich, if not house poor (real or perceived), they feel the employer should pay for their real estate commission. But what the company chooses to do in this individual case, is all about how hard the war for talent is for this type of employee.
Is it worth spending $25,000 more for him, if he is crucial to the company’s future? Or, can you take a chance, increase your $15,000 by a smaller amount and make the employee know that he is expected to invest in his relocation.
But, again, the number of costs that have gone up since the cap of $15,000 was created are significant:
- Real estate prices
- Days on market before one is able to sell
- Temporary accommodation nightly cost
- Temporary accommodation duration
- Household goods moves labour and mileage costs
That is a lot to have gone up without a company changing their Capped Relocation Allowances.
What is the best way to get away from Sticky Numbers?
HR does not always hold the purse strings, so cannot necessarily call the shots on what a good Relocation Allowance should be. As always, it should be a balance between cost control and the climate of your talent management context and strategy. So how do you get away from Sticky Numbers if you don’t hold the purse strings?
One word: Education. Work with your Relocation Management company to create a matrix of costs between your locations for all the costs that occur during a relocation. Share the results with the hiring managers. Create budgets per each relocation and share them early with your hiring managers.
This education can go a long way to improving the quality of Capped Relocation Allowances. Getting buy-in for increased per diems and mileage is one thing, but getting buy-in for increased Capped Relocation Allowances is another. It requires the hiring managers to see with their own eyes each cost category in the relocation, and its impact on the total cost of relocation.
A Sticky Number that can go down
So, this next example is one of a Sticky Number that can go down. Many defined benefits relocation policies come with a Miscellaneous Allowance that is equal to one month’s salary.
So, since this benefit was created, not only have more relocation benefits been covered, but the cost of someone’s salary has gone up. Right now, to relocate an executive will cost you a pretty amount if you give a Miscellaneous Allowance of one month’s salary along with the rest of your relocation policy. It is not needed.
The actual fact is that these Miscellaneous Allowances are partially needed for relocation costs, but they are also just as often used as a form of Relocation Bonus. That was not the intent of the Miscellaneous Allowance. So, how low can you go? It depends.
We have a client with a Miscellaneous Allowance of just $700 and they have a corporate culture that makes it work. With other corporations this would not work. So, you could reduce the Miscellaneous Allowance to a fixed number, such as $3,000 or $5,000 or even $1,500 for lower tiers. Or alternatively if you want to stay with salary, you can reduce it to the equivalent of a half month’s salary.
Either way, the one month’s salary is a legacy benefit that no longer serves the need it once did, and now is an excellent time to adjust it in your policy.
So those are some sticky numbers that you can review in your policy. If you have any questions about adapting your relocation policy, please don’t hesitate to reach out.