Looking to Benchmark Pay?
Lump-Sum Relocation Plans
The simplest possible policy for relocation is to grant a lump sum and allow the employee to spend it as he or she pleases. In this way, the company is divorced from the whole process, placing the entire responsibility on the employee.
| Advantages | Disadvantages |
|---|---|
|
This plan provides an up-front amount of money to the employee when it’s most needed. It encourages the employee to keep relocation costs in check since the employee can keep any amount left over. |
The lump-sum approach keeps the employee’s focus on the relocation process and NOT on the job. There are tax advantages for the employee if the company absorbs the costs of relocation. The company can pay for these services with before-tax dollars. However, employees would have to pay with after-tax dollars if they received a lump sum to cover their expenses. |
Tiered Relocation Plans
A tiered relocation plan places each transferee in a category of pre-specified guidelines. The relocation amounts and options are different for each category of employee. Typical categories include:
- new hires
- skilled employees
- professional employees
- managerial employees
- executives
Most companies also have a special category for expatriates. These different categories are needed as costs can vary so widely.
Here are some examples…
Joe is single and a recent college graduate. Moving him a few hundred miles would probably cost a couple thousand dollars.
Catherine is a top-level executive. Moving Catherine, her husband, and their two children for a three-year overseas assignment could cost the company over $500,000.
Having relocation programs that reflect the different employees' profiles is an important Human Resources responsibility.
Here are the advantages and disadvantages of tiered relocation plans:
| Advantages | Disadvantages |
|---|---|
| In general, the amount and options granted to each category increases with the level in the company. This approach allows the company to control costs, while responding to the needs of different groups of employees. | This type of plan is not simple, and keeps the company involved in the relocation process with the employee. |
New hires
Typically, companies use some, though usually not all, relocation programs for new hires.
Q: What are the most typical relocation programs used for new hires?
A: Payment of household goods and transportation to the work site.
Recruitment has become progressively more difficult. As such, companies have begun to include more programs to attract the talent they require.
Relocation help is typically tiered for new hires. Recent college graduates require minimal programs, while a new executive would probably be granted most of the programs discussed in this course.
An increasing number of companies are turning to the use of a lump-sum payment for new hires. This, combined with a tiered system tied to salary rate, provides a simple solution to granting relocation help to new hires.
Exercise Question
It’s typical to give new-hire executives: