NEI’s Mitch Ulrich, SVP of Global Mobility Strategies, recently moderated a panel discussion on managing costs. It included a panel of five experienced NEI Client Relations Managers from around the country. Listed below are some of the highlights of the session.
This is the very first opportunity for clients to address cost management. The trend is to move towards two years and pro-rate the second year.
Recently, clients have begun exploring additional options to aid in the collection process, such as NEI’s partner, Commercial Services Group (CSG), to aid in the collection process for relocation payback agreements and other business expenses, such as education reimbursements.
Cost of Living/Housing Allowances (COLA/COHA)
It is important to review COLA/COHAs for “repetitive benefits” and adjust them if employees are receiving both differentials to eliminate “double dipping”. For example: If employees are receiving a COLA benefit, they should not also receive a COHA benefit because it has already been calculated in the COLA.
The timeline trend for these benefits range from three to five years. Typically, the benefit is reduced each year and a minimum threshold must be met for the benefit to be implemented. Most companies use five percent, but if cost containment is critical; some use higher thresholds of ten to fifteen percent.
Subsidies ensure company money is going towards the intended benefit, such as housing costs, not other items at the employee’s discretion. As today’s interest rates are so low, companies might consider using a dollar-driven subsidy, which reduces the payment amount, not the interest rate.
Consider eliminating these from policy, as discount points are not as cost effective as they once were. Consider a graduated, tiered structure tied to the interest rate at the relocation time.
Loan origination fees have not gone away, but they no longer discount the interest rate as they may have previously. Clients should evaluate policy language to ensure these fees are not needlessly contributing to lender profit with no benefit to employees.
Partial Lump Sum
Conditions have changed over the past several years. With many clients facing different market conditions, some clients have taken the approach with their domestic policies to provide client cost savings while adding employee flexibility.
When comparing NEI clients with Partial Lump Sums to those with defined benefit policies, Partial Lump Sum programs had 79% fewer exceptions by costs. It works for all tiers, including executive levels and we have not experienced any concerns with executives who receive it.
Home Sale Program Type
Sixty days of required marketing time remains a common requirement for Guaranteed Buyout (GBO) programs, though some have moved to a 90-day period.
Most companies require employees to:
- list their homes at no more than 105% above the appraised value or BMA average
- make graduated list price reductions when marketing.
Allowing employees to accept offers within 95-97 percent of the GBO offer is common as it encourages them to consider all offers, which, in turn, can reduce company losses by keeping houses out of inventory situations.
Home Sale Bonus
A Home Sale Bonus program provides transferees an incentive to price homes appropriately and generate quick sales. Employees perceive the bonus as a way to make up for a potential shortfall. The most common structure is a flat 2% of the sales price for the GBO program. Though bonuses are not used as much with BVO programs, NEI typically recommends using a sliding scale if the house is sold within 90 days when they are used. Clients typically cap bonuses and do not provide tax-assistance.
Sixty-four percent (64%) of companies require employees to share in the loss. Most companies place a $25,000-$50,000 cap on the benefit and do not include capital improvements in the calculations. While many companies still include a loss-on-sale benefit, others have revised their policies to use only on a case-by-case basis.
Trends for shaving costs while in Temporary Living include offering a grocery allowance instead of a meal allowance when cooking facilities are available in accommodations. Another trend is to eliminate paid lunches in the new location and limit benefits to the employee only. Using a Partial Lump Sum can create savings as employees are less likely to choose fine dining, etc., when using their own money.
Today, more companies are including this benefit:
- in a Partial Lump Sum option
- offering one trip only or, if allowing two trips, stating the second trip must specifically be used for home finding only and not for other purposes.
Exceptions for trips due to new home purchase are not recommended, as this is an employee’s personal preference decision.
Household Goods/Auto Shipment
Key trends include:
- Auto Shipments: most companies have a mileage requirement of 400-to-500 miles to ship and NEI recommends shipping one vehicle ahead of time to avoid rental car costs.
- Storage: Many clients include storage, but more are specifying that it is not allowed if the employee can move into their destination home. Clients do not want their employees using storage because they decided to make improvements to the property (e.g., sanding floors, remodeling, painting, etc.).
- Discard & Donate Program through NEI partner Home Sweet Home: Newer to the industry, but becoming quickly popular as it can reduce shipping costs, enhance home marketing efforts through de-cluttering and employees may receive a tax benefit for donated items not shipped. This program supports clients’ green initiatives, has received very positive feedback from transferees and is guaranteed to be cost neutral or cost saving.
We always look forward to providing consultative dialogue, analysis and recommendations based on each individual client’s unique circumstance and culture. However, it doesn’t have to stop here. We recommend NEI clients reach out -- any time – with new questions to best address changing trends and see how NEI can help you weave them into your business goals for maximum efficiency, productivity, and savings.