What are lump sum relocation packages?
Global Mobility Solutions recently surveyed its clients to determine the impact of lump sum relocation packages on their organizations. Industry trends arising this year are having a direct effect on transferees. Often, these trends become visible through business intelligence and data analytics.
Lump sum relocation packages are a specific amount of money that employers offer to transferees or new hires. This money replaces relocation benefits such as household goods moves, culture and language training, or home-finding assistance. Employers expect employees to receive a lump sum payment to manage their relocation process.
Advantages of Lump Sum Relocation Packages
The advantages of lump sum relocation packages relate to helping employers simplify the process. The main benefit is that employers and their mobility managers have fewer complications around relocation support. Providing support during an employee’s relocation is reduced to answering questions about when the lump sum funds will be available. Additionally, lump sum packages allow employees greater flexibility in how they choose to spend the money. Instead of being tied to specific services, employees can allocate funds according to their unique needs and preferences. For instance, some may prioritize hiring professional movers, while others might opt for temporary housing or travel expenses. This autonomy can lead to a more personalized and satisfying relocation experience.
Lump sum packages also encourage employees to take responsibility for their relocation. With a set amount of money, employees must plan and budget their expenses wisely. This can foster a sense of ownership over the relocation process as they make decisions that best suit their circumstances. It can also lead to more thoughtful planning as employees weigh the pros and cons of different options.
Budgeting and Forecasting
Another simplification for employers revolves around budgeting and forecasting. Instead of working to understand the actual costs of hiring new employees or transferring employees from one location to another, the budget process is tied to a number that is applied across the board based on tiers in the relocation program. An executive homeowner with a family relocating from Duluth, MN, to New York, NY, is given the same lump sum payment as another executive renter relocating from Las Vegas, NV, to Fort Wayne, IN. The renter will pocket a significant amount of money. However, the homeowner will not have enough funds to move their family.
Disadvantages of Lump Sum Relocation Packages
Lump-sum relocation packages make administration and budgeting more accessible for employers. However, there are several disadvantages employers are beginning to see in their organizations. First among these disadvantages is that many lump sum payments do not adequately cover all of an employee’s relocation costs. GMS’ 2019 Lump Sum Survey shows that employees spend more, sometimes significantly more, on their relocation than their lump sum payment. This includes:
- 61 % of homeowners reported spending more
- 50% of renters reported spending more
Employee Dissatisfaction
Ultimately, more than half of relocating employees need more lump sum cash to cover expenses. Naturally, this results in a higher level of dissatisfaction with the organization’s lump-sum relocation packages. Overall, dissatisfaction with lump sum payments follows these patterns:
- 58% of homeowners reporting dissatisfaction
- 53% of renters reporting dissatisfaction
Loss of Control
A significant disadvantage is the employer’s loss of control over spending budget dollars. Lump sum relocation packages disbursed directly to employees may result in company funds being spent on non-relocation expenses, including cars, televisions, vacations, or other items. Funds spent on non-relocation costs do not support the successful relocation of the employee. As a result, the relocation may be at a higher risk of failure.
Additionally, this lack of oversight can lead to inconsistencies in how employees utilize their relocation funds. Some may prioritize essential moving expenses, such as hiring professional movers or securing temporary housing, while others might allocate their budgets toward personal indulgences. This disparity can create a sense of inequity among employees, as those who spend wisely may still face challenges in their relocation process. In contrast, others may find themselves financially comfortable but unprepared for the logistical aspects of moving.
Moreover, the unpredictability of lump-sum payments can complicate the relocation experience. Employees may underestimate the true costs associated with moving, leading to financial strain when unexpected expenses arise. For instance, last-minute repairs on a home, increased transportation costs, or the need for additional storage can quickly deplete the funds, leaving employees feeling stressed and unsupported.
To address these issues, organizations might consider offering more structured relocation packages that balance flexibility and support. For example, a tiered approach could allow employees to access funds based on specific needs, prioritizing essential relocation expenses while giving them autonomy over their choices. This way, companies can maintain better control over their budgets while enhancing employee satisfaction and reducing the risk of relocation failure.
Ultimately, a thoughtful approach to relocation packages can foster a more positive employee experience, leading to smoother transitions and greater overall satisfaction with the organization’s support. By recognizing the complexities of relocation and adapting their strategies accordingly, employers can create a win-win situation that benefits both the company and its employees.
Inefficiencies
Many GMS clients achieve significant spending reductions with relocation programs that follow industry best practices. A major GMS client recently conducted an in-depth study of their relocation program expenses. This client learned that if their organization moved to a lump sum program, they might increase their relocation program expenses by 40%. In other words, by following industry best practices, this client keeps relocation budget dollars that otherwise would have been spent on inefficient lump-sum relocation packages. Any GMS client can achieve the same reduction in relocation costs through:
- Benchmarking their relocation policy to industry best practices
- Efficient relocation program operation
- Providing support to transferees that they need
- Using business intelligence and data analytics to understand the actual costs of their relocation program
- Utilizing a competitive vendor network of relocation service providers
What Does This Mean?
Companies that offer lump sum relocation packages could save a significant amount of budget by following industry best practices. Lump sum payments let employers simplify their internal support, budgeting, and forecasting processes. However, this simplification may cost employers up to 40% or more of their relocation budget. It also results in over half of transferees reporting dissatisfaction with their relocation packages.
What Should Employers Do About Lump Sum Relocation Packages?
Employers with transferees or new hires who are recent college graduates, individual contributors, or new to their professional careers may be the best candidates for lump sum relocation packages. These employees are often renters and may not have a significant amount of household goods to move to a new location. Also, they tend not to require a significant investment in talent acquisition, as they compete for lower-tier positions.
Industry best practice is to provide a range of benefits for employers who have new hires and transferees at higher tiers. Employees at higher tiers often require a significant investment in talent acquisition. Benefits that help ensure successful relocations also result in higher employee satisfaction.
Conclusion
GMS’ team of corporate relocation experts has helped thousands of our clients understand how to create relocation policies that attract and retain talent. Our team can help your company provide the best experience for transferees and new hires with lump-sum relocation packages.
GMS was the first relocation company to register as a .com. The company also created the first online interactive tools and calculators and revolutionized the relocation industry. GMS continues to set the industry pace as the pioneer in innovation and technology solutions with its proprietary MyRelocation™ technology platform.
Global Mobility Solutions is proud to be named and ranked #1 Overall and #1 in Quality of Service by HRO Today’s 2019 Baker’s Dozen Customer Satisfaction Survey.
Contact our experts online to discuss how your company can leverage lump sum relocation packages for new hires and transferees, or call us at 800.617.1904 or 480.922.0700 today.
We're Here to Help! Request a Courtesy Consultation
Are you ready to talk to a Mobility Pro? Learn how GMS can optimize your mobility program, enhance your policies to meet today’s unique challenges, receive an in-depth industry benchmark, or simply ask us a question. Your Mobility Pro will be in touch within 1 business day for a no-pressure, courtesy consultation.
John Fernandez | CRP, GMS, SSB
Executive Vice President John oversees global operations, marketing, business development as well as reporting and analytics. John’s 23 years of mobility experience include excellence in varied positions such as Relocation Counselor, International Assignment Manager, Manager of Latin American Operations, Director of International Operations, Global Account Executive, Vice President of Sales and Vice President of Global Services. The depth of John’s mobility experience also includes multiple assignments and domestic relocations of his own. He has lived and conducted business around the globe and speaks multiple languages.
