16 May Lump-Sum Relocation Payments: Are They Right for You?
Lump-sum benefits might seem like the easy answer to administering your relocation program expenses. However, while offering a full, or partial, lump-sum benefit may seem a foolproof way to provide consistency to a mobility program, doing so may actually be counter-productive to your company’s relocation program goals.
It’s true that lump-sum benefits include reduced administrative burdens, greater cost control, fewer exceptions, and more employee flexibility than variable benefits. And, in some circumstances, lump-sum benefits are a valuable tool for your HR Department.
But if your company is thinking of adopting lump-sum benefits as a practice, there are issues you should consider before doing so. HR Managers, in particular, should make sure their relocation program keeps their company competitive by meeting the varying needs of different levels of employees, while contain excessive costs.
The three most common reasons why companies consider using full, or partial lump-sum benefits are containing expenses, employee flexibility, and reducing administrative burdens.
The most common expenses covered by lump-sum payments fall into the miscellaneous expense allowance (MEA) category. This category covers expenses not specifically addressed in the company’s relocation policy, and may include events such as the cost to break a lease, or preparing the old home for sale. Miscellaneous expenses can vary wildly, so it’s easy to see how a lump-sum payment would seem like an attractive option for cost control.
Lump-sum payments have an obvious useful role when flexibility is desired since an employer cannot (obviously) foresee every possible need for each and every individual employee. A lump-sum payment relieves the HR department of deciding if an expense qualifies for reimbursement under the company’s relocation policy, and gives the employee the discretion to make the decision about how to allocate their relocation expenses.
Ease of Administration
A majority of employers use a tiered approach for the types of lump-sum benefits offered with caps for the total for each type of benefit and the total amount offered. Tiers are typically structured around the level of the employee within the organization: companies differentiate between a new hire or a hire fresh out of college and executives in leadership positions.
Set tiers means lump-sum payments can be made with minimal administrative work. However, it is precisely this “one-size-fits-all” approach that, while it makes lump-sum payments seem desirable, may also work against the long-term relocation goals of the employer.
Perception Affects Production
The complexity of lump-sum payments are revealed when you begin to consider how that payment may be perceived. Before your company adopts a straight lump-sum approach to relocation, consider whether such an approach is a good match for your company.
Consider how your company perceives itself, and how it wants to be perceived. Does your company pride itself on its commitment to employees? Does it perceive itself as “caring”, “welcoming”, or “a family”?
Now consider the employee experience with a lump-sum payment. This type of relocation is, essentially, a “you are on your own” type of relocation. If your employee is distracted by managing the move on his/her own, how will that affect their productivity on the job – and your company’s revenue? And when the employee encounters challenges or problems with their relocation that they have to solve themselves, what kind of impression does that create for the employee about how well his/her employer lives their stated values?
Another “soft” impact to consider is how the relocating employee’s experience will impact the company’s future recruiting efforts.
Discovering the immediate, hard costs for lump sum programs can be accomplished by gathering and analyzing data. The unknown costs of lost revenue and lower employee productivity, marketplace reputation in the industry that can result from lump sum programs are harder to quantify.
Mobility programs need to strike a balance between meeting recruitment goals, providing support to relocating employees, and managing costs. To ensure that the decision made are the right ones for your company, those decisions should be made with a full understanding of the possible scenarios involved, as well as the benefits and potential costs to your company.