Essential Knowledge Growing Pains: Strategic Relocation Concepts for a Recovering Economy

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1 Essential Knowledge Growing Pains: Strategic Relocation Concepts for a Recovering Economy VISION Relocation Group Vol. 6, No. 4

2 Navigating growth means turning talent management and employee relocation into a strategic arm, driving better employee/company outcomes and reduced costs The VISION Relocation Group Point of View: To be successful in a growing economy, your company needs to effectively navigate the transition from crisis/recovery mode to growth mode your competitors will. Hiring locally and consolidating positions was in during the recession/recovery; now it s about finding the right talent, regardless of their location. 84% of companies still want to provide a managed home sale program. They don t want to walk away from relocation; they want to be more strategic. Companies need to adjust their relocation packages to entice and sustain the best talent, while mitigating program risk and watching their bottom lines. The economy is growing will your company grow with it? Economic indicators during 2013 show a slow but steady upward trend in the U.S. economy. Growth is gaining momentum as business and consumer confidence strengthen and Europe begins to emerge from its 18-month recession. After a 7.4% unemployment rate in July 2013, the lowest since December 2008, signs of domestic economic growth and a decreasing unemployment rate indicates hiring is occurring. As the job market is expected to improve for the rest of the year, it is anticipated that the private sector will pick up the slack from decreased government spending and hiring. This rate is estimated to be ,000 per month with increases in trade, finance and business services, leisure and hospitality, retail and surprisingly, manufacturing. Many company executives say hiring will continue as they see consumer spending rise. While inflation is still tame, consumers still cautiously watch their spending but slow and steady growth is predicted to continue. For many executives we ve heard from, this is as much cause for celebration as it is a reason for sleepless nights. Does your company have the right strategy to grow and, more importantly, to hire and retain the key employees who will facilitate that growth? Chances are, your competitors are thinking about this, are you? At VISION, we consider relocation an important element of your company s overall growth strategy, and you should too

3 A growing housing market presents challenges and opportunities for relocation. A key driver in these positive indicators is the housing market. It is anticipated that sales of existing homes will climb about 7.5% and new home sales and construction are seeing even larger gains. Markets hit hard during the housing crisis are starting to make considerable rebounds this year. Areas like Las Vegas, San Francisco, Los Angeles, and Phoenix had large pricing gains this year according to Case-Schiller reports. Even Dallas, which was not as affected by the crisis, showed 8% pricing growth. Overall growth will likely continue for the duration of the year, even with slightly higher interest rates which are still at historic lows. Appreciation in real estate prices is good for the economy and can have a direct correlation to an employee s ability to consider relocation. The Worldwide Employee Relocation Council 2013 U.S. Transfer Volume and Cost Survey show a slowly increasing level of U.S. domestic relocation activity this year. The majority noted a gain in internal transfers being offered while fewer new hires involved relocation. Overall projections show ongoing positive internal transfer relocation growth as we head toward Temporary assignments are matching 2012 levels so many companies appear to be incorporating permanent relocation moves as a major part of their business growth plans. In order to give serious consideration to a job opportunity involving relocation, however, homeowner employees need to know they can quickly detach from their former home without severe financial repercussions. In fact, VISION Relocation Group s One-Minute Survey in July 2013 indicated that 80% of the clients surveyed see the importance of covering the departure home selling costs. This factor complicates things, as more corporations are now following the government s trend away from carrying homes for employees long-term, regardless of the talent benefit. Today s growing companies simply can t afford to be in the real estate business as it relates to their transferee s homes. But they ll be at a serious competitive disadvantage if they hire only the local talent, and not the right talent, regardless of location. How should companies balance the above cost concerns against employee effectiveness and growth? Attracting and retaining the best talent means having a well-structured relocation program that features an outsourced, managed home sale program. Managed programs also include tax benefits to the employee and cost savings for the employer, thus lowering the overall relocation spend. And VISION specializes in collaborating with clients to design, consult on and administer programs aligned with their industry, cost tolerance and competitive talent demands. What exactly does this look like?

4 The VISION Focusing Lens Policies that manage your relocation spend, and grow your company. VISION recommends several programs that are ahead of industry trends and position clients to seize the next boom in the economy, and strategic talent: Buyer Value Option/Loss on sale Homesale Program: Buyer Value Option (BVO) programs offer reduced costs to the employer and may provide a tax exempt program to the transferee. However, alone they may not offer enough benefits to get employees to the new location in a timely manner. To assist in still challenging markets, combining this program with a loss on sale benefit can be an effective way to encourage talent mobility. In the Worldwide ERC 2013 U.S. domestic transferred employee survey, there was a significant increase in the percentage of companies offering this benefit in their programs (67%). The value of the benefit can differ by homeowner policy tier and is applicable only when the home is appraised for less than the outstanding mortgage. Programs can pay loss with a capped limit and/or a shared percentage with the employee. As an example, the employer pays 70% of the documented loss up to a set dollar amount, and the employee pays the 30% balance. A capped limit protects the employers bottom line. This payment is a taxable event to the employee and the majority of companies do apply their tax protection methodology to the payment to fully assist the employee. In addition to providing the right policy elements, VISION recommends that clients create a relocation culture of accountability among executives and transferees in their company. In particular, transferees are responsible for their end of the policy, including marketing their homes correctly and aggressively in advance of their move (depending on the policy, typically days). Such a culture, in conjunction with ongoing guidance from experienced relocation counselors helps guarantee greater return on relocation spend. When companies balance cogent policy elements, strict cost controls and transferee empowerment and benefit, everyone wins! Take, for example, Vanessa Brown, of Otsuka America Pharmaceutical, Inc. working in conjunction with VISION: We worked together to analyze our current running costs including the uncapped loss on sale. Based on our findings, we crafted a BVO program with clear, tight marketing guidelines and a capped loss on sale by policy tier. With VISION s help, we guided our employees in the home marketing process to list correctly, and achieve the best offer. Knowing they were partly responsible for the loss on sale dollars, but also capitalizing on a growing market, we realized tremendous savings and timelier employee home sales. The impact on our bottom line was significant, and freed up budget for other program areas

5 Fixed-Fee: Getting your key employees settled faster, and settling your corporate books, is of paramount importance, especially when moving critical staff to new and diverse locations. Your and their productivity depends on it. Compared to the traditional cost plus of a guaranteed home sale program, VISION s Fixed Fee program offers the employee a buy out after a period of tightly managed marketing with the value being determined using a typical relocation appraisal process. Fixed fees are typically based on a percentage of the home s appraised value negotiated with the client based on their transferee and location demographics. This program allows the employee to move onto the new position quicker and be more productive than with standard BVO program in slower recovering markets. It is a viable program for clients who need to rapidly move critical staff to new locations while looking to manage their costs up front. Combining this with a loss on sale program to give the employee supplemental funds, if needed, to accept the buyout offer can be very effective for all parties. On Our Radar Other Program Elements to Consider Pre-decision appraisals: Unfortunately, Homesale programs are not always the sole answer for an employee being considered for a new position requiring relocation. There are times when they are so under water in home value (mortgage balance is less than current value) they could be put in a severe financial situation if they sold their home, even with loss on sale benefits. When discussing a potential move with an employee who has concerns on their current home s value, it is effective to provide a company paid appraisal to determine value. This can be coordinated by the relocation management company to assist the employee in determining if a move is even feasible. A look/see trip before making the final decision to relocation: Arrange for a guided area tour of the new location for the employee and spouse paid by the company to include housing, schooling and an overall orientation of living in the new location. This can provide realistic expectations of what their lives and living expenses would be in the new area. The success of relocation can dramatically increase by including this benefit in the interview process. At the same time, a failed relocation cannot only cost a company the expense of administering the benefit, but could also potentially lose a high-quality employee, which could have a long-lasting, indeterminable impact on growth

6 Signing and retention bonuses: In the fluid and increasingly competitive world of mobile talent, signing bonuses are no longer just for new employees. Top companies around the world are offering incentives for existing talent to relocate for critical positions. Such extra financial payments (typically not tax protected) show the company s commitment to their long-term organizational value and professional growth. Our Conclusions Companies that stumble in the transition from crisis/trouble mode to growth mode often do so because they don t have the right talent, in the right places, doing the right kind of work. In a growing economy, a rising tide lifts all boats and your competitors are just as likely as you to gain ground, be it intentional or by accident. Failing to seize every opportunity, domestically and globally, means losing market share and revenue. Whether simply filling gaps in other offices or grooming professionals for leadership roles, relocation has become a mission critical component of strategic talent management for our clients, and by extension, the futures of their companies. VISION is equipped to turn relocation and staff mobility into a core strategic initiative for your team that generates opportunity and controls risks, costs and effort. We d appreciate the opportunity to share our ideas and collaborate with your team! About VISION Relocation Group VISION is a full service global relocation management and consulting company that has been providing government, corporate and non-profit clients with innovative and service-driven relocation experiences for more than 26 years

7 Our team provides a personalized, consultative approach to your relocation benefits program that makes us more than just a Service Provider, but a dedicated steward of your most precious assets your employees and your bottom line. Although you will enjoy the cost-savings and efficiencies of outsourced relocation management, we guarantee service that feels in-house, and a team whose success begins with yours. In every client relationship, VISION brings these insights and our collective experience to bear to deliver creative, high-quality relocation programs whether your team has 20, 200 or even more yearly relocations. We reduce hassle and your personal time commitment so you can focus on your business strategy, while we handle the rest. Contact us at servicefirst@visionrelocation.com At VISION, we believe it s critical to push and pull at old limitations and preconceived notions to develop creative solutions to our clients global relocation challenges. We call it Relocation Imagination, and we look forward to sharing the benefits of our years of experience with your team. Sources: Kiplinger, Kiplinger s Economic Outlooks, Tool, August 2013 Forbes, Home price growth beginning to slow down, says S&P/Case-Schiller, 8/27/13 dallasnews Business, Dallas sets new record in June Case-Schiller home price report, 8/27/13 Worldwide ERC, The Workforce Mobility Association, U.S. Transfer Volume and Cost Survey 2013 VISION Relocation Group, Essential Knowledge: One-Minute Survey Says., July 2013 VISION Relocation Group, Information Regarding Relocation Homesale Programs, IRS Issues Ruling, April 2010 Internal Revenue Service, Internal Revenue Bulletin: , 12/19/