US
May 27, 2022
Lump Sum relocation programs are a popular option for assisting employees with their moves because they balance 2 key needs:
- Relative ease for the employer to administer
- Great flexibility for employees to use the funds to suit their unique needs
In general, the lump sum is intended to defray relocation expenses and could be applied toward expenses that include temporary living, home sale/home purchase closing costs, rental assistance, HHG shipment, and final move.
We’ve seen this approach used mainly for domestic relocation, though some organizations have applied this to international transfers as well. Typically, this policy type is offered to recent graduates and other new hires but can also be offered by policy tier and may consider job level, distance to the new location, family size, and homeowner status.
Let’s explore the benefits of using this policy type as well as the disadvantages:
Employees gain more flexibility
Employees like having the option to spend their Lump Sum to select relocation benefits that meet their needs.
Those who have little experience with relocating, however, may not understand the cost of certain services, and could end up making suboptimal decisions that result in a feeling of dissatisfaction with the company’s support and even affecting productivity.1
Administration is simplified
While this type of program usually requires less effort from the HR or Global Mobility team because the employee is managing the process, there are always special cases. It can be a time drain if the employee requires more guidance from corporate resources – or a frustrating employee experience if the in-house team isn’t equipped to help them easily.
Potential savings
Lump sum programs generally show short-term cost savings by covering fewer benefits than fully managed programs. However, it can be misleading looking at just total spend alone.
Some relocation services that can be critical to a successful or speedy path to productivity in the new role, such as Destination Services, may be unavailable to the employee ad hoc or within the lump sum budget. There are other services that employees may not consider valuable until they’ve experienced them, such as professional packing and loading.
Value of the program
Determining the total costs of the mobility program is streamlined when Lump Sum packages are the norm. They offer highly predictable costs for planning purposes – cost is a simple function of the number of employees moved.
There’s less insight, however, into how employees are utilizing relocation benefits. Without transparency to what’s being used and what’s going well (or not), making any adjustments to drive program effectiveness or efficiency is problematic.
There is also a loss in efficiency. Lump Sum transferees often end up paying a higher price for services as individual buyers than they would if they had access to top-notch vendors sourced by the company or a relocation management company.
Finding the right program that supports the employee experience
Cost for materials and services has risen significantly in the past couple of years due to supply chain shortages and other factors. It’s simply now more difficult for an employee with a set amount of funds to cover their relocation expenses than it was a few years ago.
Employees aren’t uniformly affected, of course. Recent college graduates conducting solo moves with personal belongings are far less affected than mid-career employees who need the help of a professional mover for a family home.
Rising costs also affect a broad range of services, from household goods moving to temporary living, rental finding assistance, and destination services. But if you’re concerned that employee loyalty and retention may be at risk, help is available.
To alleviate the pain of increased costs, Sterling Lexicon recommends reviewing your Lump Sum packages to ensure they are adequate. Start with quantitative measurement of program spend, move volume, and categories of associated costs to the extent they are known. Balance the analysis with corresponding feedback from relocated employees to determine how their moving experience relates to their level of engagement and satisfaction with the company.
Looking forward, consider creating a matrix approach for calculating the appropriate amount or utilizing a 3rd party Lump Sum tool that considers the personal situation of the transferring employee, in addition to origin and destination locations. What do the funds your program provides feel like to the employee? Are they helped and supported along this development plan and career journey? Or are they left feeling like a number?
We’re here to help.
Our consulting group can help your mobility team develop more effective packages that offer our buying power with service providers to obtain more favorable pricing for each service. Indeed, we have found many of our clients adopt a Managed Cap program that explicitly states what is covered by the amount, as we do the research to help determine the right amount for the services the company wants to provide with the capped amount.
Frequently, a Managed Cap policy directly covers household goods transportation services while the employee maintains the choice of how to use the rest of the cash with the help of a relocation consultant, improving the relocation experience for your employees. This is a key element in making both the company and employee happy – there is consistent support for a critical area with flexibility for the employee to personalize to their needs.
Regardless of how the Lump Sum package is structured, Sterling Lexicon recommends partnering with a company that offers the help of a relocation consultant and/or a digital lump sum tool (such as our Lump Sum Marketplace tool). Leverage this for both employee satisfaction and to track how your employees spend their funds. With visibility to this data and access to robust reporting, you can continually improve your program. Making everyone happy starts with measurement.
1: According to a study conducted by an RMC in 2019, on average, homeowners lost 22 days of work productivity and on average, renters lost 15 days.
Leah Johnson is Sterling Lexicon’s Director, Client Solutions, and has worked in the global mobility industry for more than 20 years. She has held management positions in business development, operations, account management, and consulting, and had the opportunity to live and work in Tokyo and Hong Kong for six years. She initiated destination services in Hong Kong for a relocation management company and directed global mobility for Goldman Sachs in the APAC region. She graduated from Colgate University, earned an MBA from the University of Alabama in Huntsville, and maintains a Senior Certified Professional (SCP) certification from SHRM.
