Trouble Moving Employees Domestically to High Cost U.S. Cities?

    May 25, 2021 @ 02:57 PM / by Morgan Crosby

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    Tips to help increase uptake

    In general, getting an employee to accept a domestic relocation can be difficult. It is not easy to uproot a family, logistically manage a move, and establish oneself in a new city. However, it can be even more challenging when the new location is considerably more expensive. If you need to relocate talent to high-cost locations, it might be worth taking a fresh look at your U.S. domestic relocation policies to make sure you adequately address high cost concerns.  

    Having a differentiated salary structure may not eliminate the need to pay a COLA

    Some companies have differentiated salary structures in the U.S., offering higher rates of pay in high-cost geographies and lower rates in others. Often these companies will think the geographic salary differential takes care of high-cost concerns. The answer is, sometimes is does, but for transfers from low to high-cost areas it often does not. 

    Take Houston to San Francisco for example. A company with differentiated salary structures might pay up to 20% more in San Francisco. However, if income taxes, housing costs, and goods and services are taken into consideration, an employee will need to gross 69.3% more in San Francisco to cover the incremental costs.  

    One simple solution is to provide a COLA that covers the difference in the higher offered salary and the COLA index.

    Even if you offer a COLA, your program may not be adequate 

    Yes, a COLA can be expensive, but it is a great way to bridge the gap between lower and high cost locations. Some companies attempt to temper the COLA by limiting the time the payment is offered, and/or placing a cap on the benefit. While it makes sense to limit support, high-cost areas may warrant higher caps.  Recently I have seen companies increase their high-cost location COLA caps to as high as USD 250,000 per transfer. 

    Let’s assume you are transferring an employee who earns USD 150,000 from Houston to San Francisco, and you do not have a differentiated salary structure, so the salary will remain the same. If we apply the COLA index of 69.3% to the salary it yields a COLA of USD 103,950. Let’s assume your policy uses a tapered approach which is fairly common and pays 100% of that COLA in year one, 2/3 in year two, and 1/3 in year three That would be a total of USD 207,900 over three years.

    If, for example, you have a total COLA limit of USD 100,000, that cap would be reached in year one leaving the employee with inadequate support in subsequent years. The solution is to increase your COLA cap, giving employees time to gradually acclimate to higher costs.

    Don’t forget about renters

    The biggest factor driving higher costs in the U.S. is housing. Often companies will seek to protect homeowners with robust programs including COLA, home sale, home purchase and other assistance, however renters can sometimes be overlooked. Solution make sure you offer renters a COLA, rental finding services, and cover related acquisition fees.

    Don’t assume a flat lump sum will be sufficient

    Lump sums are increasingly common for U.S. domestic moves. Often, they are provided to cover expenses related to temporary living, house hunting trips, and relocation travel. For simplicity sake, it is tempting to offer a flat lump sum, e.g. the same value regardless of location. But this shortchanges employees moving into high-cost locations, specifically because of relatively high temporary living expenses.

    For example, if we calculate the cost of a lump sum including travel, temporary living, and a house hunting trip for a family of four moving from Houston to San Francisco, the allowance is USD 16,050. If we look at the move in reverse, going from San Francisco to Houston, the calculated amount is much lower at USD 13,455 because temporary living accommodations in Houston are significantly less expensive. The solution is to make sure your lump sums reflect location-specific costs.

    Consider an innovative approach

    Most domestic U.S. policies assume the employee is permanently relocating. But employees who are willing to be mobile once may also be willing to move again. This can create an awkward situation where the company increases an employee’s salary for a move into a high-cost location and then must consider what to do for a subsequent move to a lower salary location. Would you decrease the salary? Some companies do, and some don’t.

    I have seen some companies adopt a national salary structure but pay a separate geographic salary allowance in higher cost locations. This allowance is separate to salary and is clearly outlined as an allowance that is only paid in specific locations. This makes it easier to pay the allowance in defined locations only. This makes mobility in and out of high and low-cost locations easier to manage.  

    Getting ahead of the issue is better than being behind it 

    If you are experiencing challenges with moves to high-cost locations, it is worthwhile to think carefully about your overall policy and design for success.   Otherwise, we have seen time and again that Talent Acquisition or the manager will “negotiate” a sign on bonus or some other payment outside mobility. With a well-designed domestic relocation policy you will be better prepared to meet the needs of the business and the employee.

    Learn more about domestic mobility solutions or contact us for more information.

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    Recent Blog Post on Domestic Mobility

     

    Analyzing the benefits of Domestic COLA [Cost-Of-Living Allowance]

    Talent Acquisition Managers and Recruiters are experts at selling the prospect of working at their company. There are issues that candidates consider that these companies can’t control…cost-of-living being one of them. This issue can have real consequences on a company’s ability to recruit and retain talent in an ever-changing labor market. Are you addressing cost differences in your domestic relocation program?

    High cost locations don't have to equal high stress

    Do you have locations on the coasts? Are you having trouble getting talent from lower cost areas to come to headquarters? Is talent walking out the door because the financial transition during a move is difficult? If the answers to these questions are ‘yes’ then a domestic COLA program could be beneficial. A COLA payment can be an extra benefit that sells the employee on the move.

    What about moves to lower cost locations?

    Sun…sand…surf…San Diego. Imagine asking someone to leave that and move to Milwaukee? Midwest winters can be harsh and Lake Michigan doesn’t have the surfing that the Pacific does. Maybe it’s a great promotion, development role or the four seasons? Here’s an opportunity where you can also use the significantly lower costs in Milwaukee to ‘financially sell’ the move. Lower housing costs…check, lower overall cost-of-living…check, more money in the candidate’s pocket to save and invest…check. With a careful financial analysis you can prove these points to the employee, even if you don't use the COLA report to pay any allowance.

    The Complete COLA 

    It’s important to look at the total cost-of-living impact between two locations. This should include an analysis of housing, taxes, goods & services, and transportation. Examining several different cost factors can help balance the impact of one or two elements.

    Do you need help with domestic and cost-of-living analysis?

    Reach out today to discuss how we can help design and implement a COLA approach to enhance your ability to attract and retain talent. You can reach me directly here or read more about our Domestic approach by clicking below

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    About AIRINC

    Listen | Partner | Deliver.  For over 60 years, AIRINC has helped clients with the right data, cutting-edge technology, and thought-leading advice needed to effectively deploy talent worldwide. Our industry expertise, solutions, and service enable us to effectively partner with clients to navigate the complexity of today’s global mobility programs. As the market continues to evolve, AIRINC seeks innovative ways to help clients address new workforce globalization challenges, including mobility program assessment metrics and cross-border talent mobility strategy. Our approach is designed with your success in mind. With an understanding of your goals and objectives, we ensure you achieve them. Headquartered in Cambridge, MA, USA, AIRINC has full-service offices in Brussels, London, and Hong Kong. Learn more by clicking here.

     


    2020 Global Mobility Playbook [Download]

    Topics: Housing, COLA, Rental property, Cost of living allowances, Insights and Experience, Salary Evaluation Tool, International Housing Guide, Domestic Mobility Programs, lump sum allowances, Site Summaries, Domestic Moves

    Morgan Crosby

    Written by Morgan Crosby