Realistic Relocation Packages

If you're Mark Hurd, Hewlett-Packard's new CEO, relocating is not the headache it can be for most executives contemplating taking over new assignments as they ascend the corporate ladder of success.

As part of the compensation package luring him away from NCR and its Dayton, Ohio headquarters to HP in Silicon Valley, Hurd received a $2.75 million cash relocation allowance plus a mortgage interest subsidy for four years, temporary housing for one year and unlimited weight of the household goods he'll send to California. Such generous welcomes may be proffered to CEOs of large, household name public companies, ones especially challenged like HP, but what about the rest of corporate America and its more typical recruits?

Relocation Issues

Principally because of the huge differences in the cost of housing from one part of the country to another, not to speak of moving abroad, it is safe to assume that "soup to nuts" relocation packages are mostly a thing of the past. Moving from relatively low-cost housing areas like Louisiana to ones with high real estate values, such as California, can present major challenges.

Candidates frequently find it harder to afford a house with the comparable square footage, number of bedrooms, bathrooms and other amenities they are leaving behind. In families with multiple children, this can be a very significant factor. If the family has to move further out of the new city to find a large enough house and access to comparable schools, for example, increased commuting time is almost guaranteed to become a concern, too.

Also, the substantially higher mortgage payment the family will have to assume for the new, higher-cost house is certain to be part of any salary discussions. Such was the case recently with an executive contemplating moving to San Francisco from Michigan who faced a $40,000 higher annual mortgage cost for a substantially smaller house than the one he was leaving.

Anticipating Relocation Costs

Whether moving to or from California or anyplace else, employers need to anticipate that relocation negotiations will cover these and other expense issues, such as house-hunting trips between the old home and the new place of employment, temporary housing arrangements, closing costs associated with selling the old home and buying the new, more expensive one, resultant mortgage payment differentials, cost of bridge loans and spouse reemployment services.

Lastly, since essentially everything except the actual cost of moving household goods is taxable income to the candidate, there is the tax gross-up issue to be faced.

Lump Sum Payments

It is our experience these days that some organizations prefer lump sum payments to picking up itemized moving expenses, and that they resist covering brokerage commissions on home sales as part of the lump sum. The single payment approach enables candidates to use the money however they wish, which was recently the case with one of our candidates who was moving from California to the East Coast and had a home that would sell for over $1 million. After negotiation, the employer and the candidate settled on a six-figure lump sum to cover all moving expenses plus the tax gross-up.

We also have seen situations in which sign-on bonuses were paid that were meant partly to cover moving expenses but with the clear intention that there would be money left over which would go into the candidate's pocket, thus satisfying both parties.

Before Relocating...

Moving is second-nature to Americans. The U.S. Census Bureau reports that we are the most mobile society in history, with about 20 percent of us relocating every year. Because of the financial and emotional costs involved, we advise our clients—companies and candidates alike—to approach relocation candidly and realistically.

For companies, relocation packages can represent significant cash outlays. But, within reason, relocation costs are a onetime expense and not material relative to the value of hiring the right executive for that key position. So, be creative, be flexible and do not let a few thousand dollars in relocation costs get in the way of hiring the right candidate.

The flip side applies to candidates: If the new position will take you to the next level, and be truly challenging and rewarding professionally, emotionally and financially, don't let the short-term details of relocation costs (again, within reason) cloud your vision of the long-term benefits of the new opportunity.

Until next time...

Kincannon & Reed
April 2005