Corporate Relocation: We’ve Come Full Circle

Corporate Relocation: We’ve Come Full Circle

Murphy’s Law on Recruiting Blog: “Corporate Relocation: We’ve Come Full Circle”

There was a time, early in the post-WWII economic boom, when corporations rarely considered offering financial assistance to new employees to help compensate for relocation costs.  Before interstate highways and advanced air travel, people didn’t move around much and tended to find jobs only in their local market.  As things changed, progressive companies recognized that they could hire more talented employees if they were willing to help them move and avoid the out-of-pocket costs associated with relocating for a new job. 

By the 1970s large corporations were offering full relocation packages, including paying for real estate closing costs, and by the 90s and early 2000s even small, emerging companies were following suit.  Periodic recessions impacted those packages but there was a general trend toward greater relo incentives throughout that period.  In some high cost areas corporations offered forgivable loans to help new employees afford a down-payment on a new home.  Many transferring employees even enjoyed the benefit of having their employer reimburse them if they had to take a loss-on-sale of their existing home.

The trend progressed until the massive real estate bubble burst in 2007, sending home values spiraling downward.  That coincided, and some would say caused, the onset of the Great Recession which devalued market capitalization across all industries.  Among other reactions, employers began reigning in the benefits they offered for relocation assistance.  They simply couldn’t afford to buy-out all the houses that weren’t selling, and many decided they could no longer pay for real estate closing costs for new employees who were relocating.

In 2014, now that salaries, bonuses and stock offerings have returned and even surpassed pre-recession levels, it is interesting that relocation benefits have not.  Part of that is due to the lag we’ve seen in the real estate market rebound as compared with the stock and labor markets.  But another contributor is the trend among larger organizations to follow smaller companies in the way they now offer relocation assistance.  Employers are increasingly offering capped, lump-sum payments to new, relocating employees and allowing them to spend the money however they want.  The amount is intended to offset the costs of the physical move, excluding real estate closing costs and loss-on-sale.  That amount may or may not be “grossed up” so employees can avoid absorbing the tax cost of the benefit.  The payments are essentially the same as a sign-on bonus and intended to cover the basis costs of the movement of household goods, a few months of temporary living and storage, and some house-hunting trips. 

So we’ve come nearly full circle to the early days of corporate relocation.  Whereas current employees who are transferring internally are often given real estate related benefits, including closing costs, forgivable loans,  and house buyouts, new employees who have no history with an organization are rarely offered those perks. 

Why does this matter?

For some employees it doesn’t matter at all because they are not “upwardly mobile” and will not consider relocation to enhance their career.  There is a profound and significant difference in the post – Baby Boom generations regarding their willingness to move for a job, largely related to maximizing the happiness of their school-age children.  With fewer children being born, and changing family cultures in the US and Western Europe, parents are now far less likely to relocate their families and disrupt their children’s lives as compared to past generations.

The reduced willingness among many in the workforce to relocate now gives those who are willing to move a new and distinct advantage in the workforce.   It appears that the increasing scarcity of upwardly mobile employees has become a contributing factor to the ever-widening gap in wealth among socioeconomic classes in industrialized countries. 

For employers who have difficulty in finding top-tier workers with valuable skill sets, this is a real opportunity to differentiate themselves from their competitors by offering more lavish relocation packages.  It’s Economics 101:  few companies are offering comprehensive packages, and employers are trying to entice an ever-shrinking number of talented, upwardly mobile employees.  The best employers will react by providing comprehensive relocation packages again, rather than waiting for five years or longer – when they will be forced to do so in order to compete effectively in the labor market. 

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