The Perils of Lump Sum: Dominic Tidey (EuRA COO)
Dominic Tidey - EuRA C.O.O.
There is a growing popularity for lump sum relocation packages. The concept has been around for decades and has frequently been a way for companies to speed up the process of getting an employee from point a to point b swiftly.
The Basics
Lump sum packages are allowances given to an employee to help them with the cost of relocating. They cover a wide range of expenses involved in a move from shipping possessions, temporary living accommodation, breaking a lease agreement etc. They are negotiated based on the timeline the employer has set out for the move. The shorter the timeline, the larger the need for more expenses to be covered. There are three types of payment, cash paid directly to the employee, direct payments from the employer to the supplier and reimbursement payments where the employee pays all costs up front and claims the money back after the move.
The big sticking here is the cash lump sum. As every relocation professional will tell you, this is known and the new car allowance… for obvious reasons! Rarely do we spend an unexpected windfall on something as mundane as a removal company shipping our stuff across the country when we can rent a truck and spend the money instead on something much sexier like a new car, new appliances, a new big screen TV!
In 2013 WERC (www.worldwideerc.org) surveyed lump sum practices. 46% os companies surveyed offered lump sums to pay for specifics, 28% offered this to some employees (based on seniority and pay grade with higher level execs getting full relocation packages) while 9% used this approach for all relocating employees.
The Cost Benefit Analysis
In the short term it can seem like lump sum offers a cost effective way of relocating your people. Costs are contained, fixed up front and therefore easy to slot into the balance sheet. It also seems like a hands off, empowering approach, especially appealing to millennials and GenZ who are said to be not so comfortable with face to face interaction. Therefore lump sum is particularly popular with entry level staff. However (rant coming up) this presupposes that all new staff are typecast as smart phone wielding AirBnB advocates who loathe interaction and crave self determination. These are millennial traits sure, but how many companies are actively going to recruit this personality type to fill future c-suite roles which require joined cultural and people oriented skills? The real risk with these packages is the lack of empathy and concern they show from employer to team member. Relocation (especially international assignment) is a planned part of the career development of high potential employees. The investment is huge and talent retention is absolutely key. The highest risk of losing your super star employee to your direct competitor occurs following an assignment. The traditional approach to relocation, the hand holding, high touch services, promote productivity and reduce stress. Moving house combined with a new job, in a new place with all the attendant family stress this adds, is proven to be life’s most stress inducing circumstances. The investment in professionally delivered high touch services is just that, an investment in talent and an investment in the loyalty of your teams.
I recently had the opportunity to talk with a global mobility director for a true silicon valley disruptor. She is placed at board level, where her input into the management of the global talent of the organisation is seen as the key driver to the global success they are looking for. She is able to advise on who should be where and in what time scale and as part of that role, uses a relocation management company to structure all their global mobility programmes. She is able to decide on the spend and is free from the input of procurement as the organisation sees that this is a key driver of their market share growth around the world. No lump sums here.
As companies start to realise how key talent is to their success and how shoddy approaches to relocating key people mean they lose them, I hope that the lump sum approach will be seen as outdated and counter productive.