Should settling-in allowances be the same for every employee, regardless of where they move?

In many mobility policies, the answer has traditionally been yes. A fixed allowance is simple to administer, easy to explain and straightforward to budget. But if the purpose of a settling-in allowance is to provide employees with broadly equivalent support when they arrive in a new location, there is a reasonable case for adjusting the amount to reflect differences in local purchasing power.

I’m generally a fan of keeping mobility policies simple. There are already enough moving parts without adding complexity for the sake of it. That said, a couple of recent client conversations have made me think again about this fairly standard policy provision.

Why are settling-in allowances usually fixed?

Simplicity probably explains why fixed settling-in allowances have been so common for so long.

A company might provide CHF 10,000 to every relocating employee, for example, or USD 5,000 for a single employee and USD 7,500 for a family.

It is easy to administer, easy to communicate and easy to budget. Everyone knows what they are getting, and there is no need to explain an index, a location factor or why one city happens to produce an allowance of USD 6,843.

There is a lot to like about that simplicity.

But it raises an important question: if a settling-in allowance is intended to provide broadly equivalent support, should the amount reflect what the money can actually buy in the host location?

What is a purchasing-power-adjusted settling-in allowance?

A purchasing-power-adjusted settling-in allowance starts with a common reference amount and adjusts it according to the relative purchasing power or cost environment of the employee’s host location.

The aim is not to reimburse every individual settling-in expense. It is to make the value of the benefit more consistent across locations.

A fixed amount may go a long way in one city and disappear remarkably quickly in another. Adjusting the allowance can therefore help employees receive a more comparable level of support in real terms.

What are the advantages of adjusting the allowance by location?

The clearest argument is equity.

Employees receive support linked to the local cost environment rather than an arbitrary global amount. Two employees may receive different nominal allowances, but the intention is that each receives broadly similar purchasing power.

There may also be a cost-management benefit.

Settling-in allowances are often fixed in relatively high-value hard currencies. A purchasing-power adjustment does not automatically mean increasing allowances. In lower-cost locations, the amount may fall while still delivering the intended level of support.

In higher-cost locations, it may increase, but for a clear reason: the employee needs more money to purchase broadly the same basket of goods and services.

What are the disadvantages?

The obvious trade-off is complexity.

Fixed allowances are beautifully dull. Adjusted allowances require a methodology, a reliable data source and decisions about how often location factors should be reviewed.

Companies may also want sensible minimum and maximum amounts so that currency or purchasing-power movements do not produce allowances that feel disproportionately high or low.

Communication matters too.

Employees are generally comfortable with a message such as “everyone receives $7,500”. They may be less enthusiastic when they discover that a colleague received more because they moved to a more expensive location.

That does not necessarily make the approach unfair, but it does mean the rationale needs to be clear.

Can purchasing-power adjustments become too precise?

Yes.

There is a danger of creating a level of precision that the benefit itself cannot justify.

Settling-in costs vary according to family size, lifestyle, housing arrangements, personal preferences and individual circumstances. No purchasing-power factor will make the allowance perfectly tailored to every employee.

Nor should it try to.

The objective should be reasonable consistency, not mathematical perfection.

So, what is the most practical approach?

For me, the most practical model is probably a middle ground.

If the objective is an equitable rather than simply equal settling-in allowance, companies could:

• retain a clear global reference amount;
• adjust it using host-location purchasing power; and
• apply reasonable minimum and maximum limits.

This is also something that can be implemented quite practically using established host-location purchasing-power data, rather than requiring companies to build a bespoke methodology from scratch.

That keeps the policy relatively easy to understand while allowing the benefit to better reflect its original purpose.

A company does not need to create a perfectly individualised allowance for every employee. It simply needs to decide whether paying everyone the same nominal amount is still the best way to deliver comparable support.

Simple is good.

But simple and equitable may be better.