The Hidden Costs of Relocation

The real hidden costs of relocation lie in stressed-out transferees, lost productivity and even transferred employees who leave the company shortly after a relocation.

Overview

How exactly do we define a “hidden cost” of relocation? It's not a non-disclosed cost buried in the supply chain—although those can be hidden and lead to surprise last-minute expenses if you don't have a relocation services company looking out for your company's best interests.

But the real hidden costs of relocation lie in stressed-out transferees, lost productivity and even transferred employees who leave the company shortly after a relocation.

If you eliminate loss-on-sale benefits for transferred employees who own their own homes, how much stress are you creating for your employees? If you don't offer spousal support, what will that do for the morale of your transferred employee? Stress leads to sick days, personal days and dissatisfied employees—all resulting in lost productivity and lost dollars for your company.

When you limit or eliminate moving expenses as part of a relocation package, how many more days will your employees need to line up moving companies, find the best prices or move themselves? How many days of productivity will this cost your organization?

Studies show a direct correlation between poor retention and changes in corporate relocation policies. It costs much more (in real dollars, employee time and productivity) to hire and train a new employee than it does to retain a quality worker.

In today's workplace, we know that every dollar counts. But before cutting costs by reducing benefits on employee relocation packages, make sure to measure the hidden costs of relocation.

To illustrate, we'll share a story, all too common in today's real estate marketplace and job market.

John Moves Across the Country with a "Bare Bones" Relocation Package

Meet John, a successful product manager for a sporting goods company in a suburb of New York City. John knows how to get the job done. He’s run countless successful product launches in the New York market. But now there's a problem with a product launch in the West Coast office, near Lake Tahoe. Upper management knows John is the man to fix it. But will he accept the assignment?

The executive team makes him an offer for a long-term, possibly permanent, relocation, and John accepts. Problem solved, right? The right man is in the right position to get the new product out without a glitch.

Now John meets with Human Resources to discuss the terms of his relocation. He'll receive reimbursement of all moving costs, a small bonus, and the HR department will connect him with real estate agents to help him sell his home. He's got a sizeable house in a coveted suburb — no one thinks about how long it might take to sell a two-year-old home in an overvalued area in a rapidly depreciating market.

And frankly, the HR department doesn't really know John, or what an important asset he is to the company. They don't realize the executive team wants to keep him on board — and productive — at nearly all costs. They don't realize how important John's productivity is to the company's bottom line, especially with this do-or-die product launch on the horizon.

Now John faces the most important task of his career and the burden of selling a home that is now worth less than he paid for (and less than his mortgage) — and dropping in price each day.

John moves into temporary housing in California while his wife stays behind waiting for the kids to finish out the school year, job hunting on the Internet and trying to sell the house. 

John's wife had planned to meet him in California within a month, but now it's closing in on three months, with no bites on the home and a very stressed-out John splitting his attention between real estate sales and the product launch. Every other weekend, John goes home to help his wife pack some more, re-evaluate home sale plans with the real estate agent, host an open house or do work around the house to help raise the value of his home and help it “show” better.

When he returns to work Monday after taking the red eye Sunday night, his mind still isn't on his job or the new product. The executive team in California starts to wonder what East Coast management saw in this “star player.” His head is barely in the project. He misses meetings, forgets important details, and the important product launch is even further behind schedule than it was before. The product is high volume, low margin, which means that every day it's not on the market means lost revenue ... and the holiday season is coming.

When John misses a deadline to finalize an agreement with a major distributor and is locked out of their plan for the next year, the company wonders if it can recover from the estimated $17 million loss in projected profits from the new product, the damaged relationship with the distributor, and the loss of morale across the department.

John, who was supposed to be the shining star, crash landed — and it's nearly impossible to put a price on the damage it did to the company, above and beyond the projected $17 million-plus.

Let's take the scenario one step further. After losing face, failing to sell his home, and living with six months of stress, John moves back to New York, takes his house off the market, and opens an independent consulting firm. Now the sporting goods manufacturer has to hire and train his replacement — more lost money, time and productivity.

A Better Ending for John

Now, let's look at this scenario where the sporting goods manufacturer relies on a relocation services company, rather than the HR department, to negotiate, organize and manage John's moving package.

The relocation company hires the best and brightest real estate agency to take the sale of John's home off his plate. John's company offers to pay a percentage of loss-on-sale if, after 30 days, John can't get the asking price for his home. The company isn't taking on the whole burden, but it's enough that John can afford an equal quality house in the new area and maintain his standard of living. Qualified real estate agents in California help John find a new home he and his wife love.

The relocation company manages all the details of the physical move, leveraging years of industry relationships to hire the best movers at the best prices. John and his family are packed and ready to go the day they close on both houses.

The relocation company also helps John's wife find a job. The company provides a community information package that helps John and his family feel comfortable in the new surroundings, pointing the two professionals to local networking groups, and listing local sports and activities for the kids.

John and his family move together and, after a few days off to unpack and recover from jet lag, John is at the office and ready to turn things around on the new product launch. The product actually releases two weeks before deadline, and sales figures are 20% above projections.

A year later, a happy John cashes a check for his retention bonus, and by that time, is already heavily immersed in the next big launch.

Just Where Are the Hidden Costs?

In our first scenario, we can spot multiple hidden costs:

  • Temporary housing
  • Multiple trips home for the relocating employee
  • Lost productivity, due to travel and stress
  • Missed deadlines that cost money
  • Lower morale, company-wide—when one company leader is experiencing stress, it can affect a whole department
  • Hiring John's replacement
  • Training John's replacement
  • Lost productivity during the training and acclimation period for the new employee

Today's relocating employees face multiple stressors that employers can help alleviate with the right relocation package and home sale assistance. While packing and moving, uprooting a family, and transferring schools are all stressful, today's most stressful moving issues come from the sale of a home.

Some employees' homes are already “under water,” meaning they owe more on the mortgage than the house is worth. Others simply won't be able to recoup the investment of what they paid for their home in a booming market. Many people wouldn't sell if not for a career opportunity and incentives too good to pass up—or the fear of losing their job if they turn down the relocation package. Since happy employees are more productive than scared, stressed employees, it's in a company's best interests to offer a relocation package that includes:  

Home sale and purchase assistance

  • Possible loss-on-sale benefits
  • Timely, high-quality, low-stress moving services (for household goods, vehicles and pets)
  • Spousal assistance
  • Tours of and visits to the new location
  • A way for transferred employees to provide honest, objective feedback regarding their satisfaction immediately after the move, and then three and six months later

Benefits of a Successful Relocation

A successful relocation, whether it's managed by an HR department or a relocation company, is one in which the transferee can get back to the job, focused and stress-free, as quickly as possible. The transferee should feel good about the decision, good about his new home and valued as an employee.

When a company develops a relocation policy, decisions must be made. Sometimes, budget cuts force cutting corners. But don't forget to factor in the hidden costs of a relocation before you begin eliminating or limiting key services. It can be challenging to quantify the hidden costs of a relocation, including lost productivity, drops in morale, and employees that quit after a stressful relocation, but a relocation services company can help you make these decisions with best practices, matrices and standards that show the real costs of a relocation package.

The secret to eliminating hidden costs in relocation is to be sure that everyone in the company—from the chief executive down to the administrators in the Human Resources department—is aware of what’s most important to the transferee. In this way, you can keep costs down while ensuring a faster return to productivity for transferred employees—and their whole department, in many cases.