Excerpt from:
How to Address High-Cost Location Concerns without COLAs and MIDAs
Mobility/October 2006

By Kay Burd, CRP

Whether it is a move from Charlotte, NC, to Los Angeles, CA, or from Charlotte to Minneapolis, MN, the question on the part of a transferee is the same, "How am I going to afford my new location?"

According to the Worldwide ERC© 2005 Transferee Volume & Cost Survey, employees' concerns about higher housing cost areas were reported by more than three-quarters (77 percent) of respondents as a cause for reluctance in accepting relocation requests, with high cost-of-living areas in general cited by 65 percent of respondents. The question on the part of a company is, "How are we going to get this person into the housing market in the new location?" Organizations primarily address these cost concerns in three ways: temporary financial assistance payments, salary adjustments, and financial counseling.

Temporary Financial Assistance
Often, organizations overcome transferees' concerns by first determining the cost of living in each location and, when warranted, by providing financial assistance to offset higher costs in the destination location. The financial assistance is paid directly to the employee or to the mortgage lender, depending on the company’s policy, and typically is paid for a temporary period of time.

The 2005 Worldwide ERC© Relocation Assistance: Transferred Employees Survey indicates that approximately one-third to one-half of organizations address cost concerns in this way (46 percent via cost-of-living allowances and 37 percent via mortgage buy downs). Financial assistance precipitated by relocation most often is paid separate from salary in order to maintain the integrity of the compensation program, to highlight the true intent of the benefit, and to facilitate future mobility.

Salary Adjustments
Organizations may address the cost of housing and the cost of living through compensation. Thirty percent of the Worldwide ERC© Relocation Assistance survey respondents said their organizations grant higher-than-normal salary increases to address these concerns. The 32nd Annual Salary Budget Survey 2005/2006 conducted by World At Work, Scottsdale, AZ, indicates even higher numbers of organizations using such a program, with 60 percent of United States respondents and 56 percent of Canadian respondents reporting making adjustments to salary in order to attract and retain employees.

In addition, the survey indicates the use of other programs such as paying above-market, separate salary structure, and larger merit increase budgets, which can create issues for firms relocating these employees in the future. It is important for relocation administrators to coordinate efforts with compensation departments in order to effectively achieve the organization’s overall objectives.

With potential cost-of-living differences averaging between $4,500 and $37,000, allowance programs may appear too expensive for some organizations depending on the circumstances of the relocation. However, organizations should consider the effects of merit increases and benefit costs on the "cost-of-living portion" of their employees' salaries during their tenures in order to project the financial ramifications of this approach. The long-term effects of rolling over even modest increases because of higher living costs into salary may cost the organization more in terms of hard dollars.

Financial Planning
A newer program that organizations are providing to address living costs is financial counseling. This personalized service is offered to each transferee and focuses on his or her individual circumstances relative to anticipated income and expenses in the new location. With the help of a questionnaire, a transferee identifies his or her inputs and receives a projected cash-flow report (See table 1.).

Table 3: Sample Cash-flow Analysis Summary
Preliminary Report
	Year 1	Year 2	Year 3	Year 4	Year 5	Year 6
Total Income	$100,000	$98,640	$99,359	$96,160	$99,045	$102,016
Total Expenses	$87,820	$90,435	$93,123	$96,861	$99,744	$102,717
Income Less Expenses	$12,180	$8,205	$6,236	$(701)	$(699)	$(701)
Post-Discussion Report
	Year 1	Year 2	Year 3	Year 4	Year 5	Year 6
Total Income	$100,000	$98,640	$99,359	$96,160	$99,045	$102,016
Total Expenses	$85,820	$88,375	$91,003	$94,671	$97,494	$100,397
Income Less Expenses	$14,180	$10,265	$8,356	$1,489	$1,551	$1,629

 

A counselor reviews the report with the transferee to validate assumptions, discuss options to optimize his or her fiscal outlook, and address any negative cash-flow situations. It gives a transferee's family a clear understanding of its financial picture over an extended time period.

With companies spending on average between $19,116 and $63,794 to relocate a renter and homeowner, respectively, according to the 2005 Worldwide ERC© Transfer Volume & Cost Survey, the transferee's peace of mind is a worthwhile investment. A failed relocation costs more than just the expenditures - it also is time lost to refill the position, potentially lost market opportunity, and, of course, the potential loss of values employees.

Organizations have come to understand that they cannot provide financial assistance at a level at which employees' lifestyles are kept "whole," yet financial counseling enables them to address lifestyle questions. With or without cost-of-living or mortgage assistance, counseling provides the tool to the transferee to overcome their financial uncertainty, uncover real issues and potential solutions, and make educated decisions - ideally before their next home purchase.

For the complete article, please refer to "How Am I Going to Afford My New Location?" How to Address High-Cost Location Concerns without COLAs and MIDAs." Mobility Magazine of Worldwide ERC Oct 2006: 97-100.