Cost is always a top concern for global mobility programs. Relocation benefits and the services to support them all have costs which change due to numerous factors (#laborshortages, #inflation, #globalpandemic, #supplychainissues). Those costs have been going up for quite some time now. Last September we were writing about How has the pandemic impacted global mobility budgets and what should you do? Then last November, Why is moo-ving costing more and what's behind "relo-flation?" This past February we explained that Costs for talent mobility will be higher in 2022. And then in April, Are your lump sums an example of "shrinkflation?". Lastly, in May we warned that Heading into peak season, expect increased costs!
Well, in this article by Michael Deane (#oneofmyfavsinthebusiness) from All Points Relocation, we learn about some of the nuances around relocation allowances, which we often refer to as "lump sums". The downside to these, as he explains, is that they usually are not calculated from true realistic cost estimates so they nearly always leave some of the cost burden to the employee. Additionally, they leave too much of the moving process for the employee to navigate and manage. And that is all fine, especially if your philosophy for the package is to simply provide a contribution to the cause for the employee's relocation, as opposed to handling it in its entirety. But, it can get even more challenging when someone is crossing borders!
Michael goes into the four reasons things have gotten complicated on these relocation allowances/lump sums. His focus is more on the international relocation side, so the first 2 reasons both are around issues with sea shipments, more specifically that they are significantly more expensive these days and are volatile on the delivery side as shipments are taking longer to arrive. These shipment delays then cause cost increases due to the need for furnished accommodations, which are also more expensive than ever!. His point:
|Again – the shipping industry and the stress it is under has created a situation in which the old $10,000 – $15,000 Relocation Allowance has more work to do but no more money with which to do it.|
Reason three is that fuel prices have helped create higher airfares, and not mentioned, higher costs for air shipments. And lastly, reason four is that inflation overall has caused just about everything to go up in cost. Cabs, Ubers, Lyfts, food, gas, rents on most everything...etc.! His point again reinforced...that allowance is not going as far as it did before!
But Michael goes on to consider how this issue can be solved. His three ideas are:
- Consider a new number that raises the allowance for inflation.
- Start with a cost estimate and base it on or closer to that more realistic and up-to-date prediction of the cost.
- Offer a few defined benefits with the same allowance...so in essence, provide a little bit more.
Here's the reality and couple of other recommendations: According to AIRINC’s 2022 Mobility Outlook Survey, there is a 13% increase in companies offering a cash lump sum to their employees (53% total) over last year. While we gradually settle into new business patterns and working arrangements, global mobility teams are finding that the lump sum amounts that were adequate before the pandemic do not offer the same buying power today. Think through what you intend the lump sum to cover for your relocating employees. Understand how inflation (or shrinkflation) has impacted buying power. Consider traffic lanes, as some are more expensive than others. As you gather information, make sure you talk to your business partners to understand how the current lump sums are meeting (or not meeting) your talent objectives. While you are at it, talk to your employees who recently received a lump sum. And if you have a program where any taxes are deducted, consider "grossing up" those allowances.
However, during today’s times, being able to use a pre-formed Relocation Allowance of, say, $10,000 or $15,000 is much harder on the employee than it used to be. $10,000 and $15,000 lump sums are classic values created by management to satisfy the business goals (cost predictability and cost reduction) and support a relocating employee or recruit. However, these values are created in a vacuum. They are created to meet the business goals but do not consider the actual cost to relocate. And that was okay for many businesses for a long-time, but this may now put too much of a burden on your relocating employee or recruit.