Disclaimer: The views and opinions expressed in this article are solely those of the author and do not necessarily reflect the official policy or position of WERC.
Author’s Note: I set out to write an article on the end of lump sums because I don't know of many global mobility professionals who really like them. Some view them as a necessary evil and others actually hate them. I did not fully realize the breadth of this topic until I started writing, so let’s define the scope—or perhaps what this isn’t.
This is not a history of lump sums, or the increase in the use of lump sums due to the economy, DEI or ESG goals, the Tax Cuts and Jobs Act (TCJA), or generational differences. There is a fantastic white paper by FIDI covering all of this, with insights from some of the most intelligent, forward-thinking RMC leaders out there. This is definitely not that.
This article is not a summary of benchmarking surveys from companies like Altair, NEI, and AIRINC that produce thorough studies and drill down into trends, including lump sums and their percentage increase in usage year over year. All benchmarking I have seen agrees that lump-sum-only packages, for domestic and international relocations, are increasing in frequency.
This article is intended to be a tool, resource, and grassroots movement to empower global mobility leaders and service providers to stop putting lump-sum-only policies in place of fully supported, managed moves. Maybe this article will help global mobility managers justify taking lump sums out of their policy, and to educate leadership when they try to put them in policies.
Lump-sum-only relocation packages’ days are numbered. Or at least they should be.
When used for early career relocating employees, rotational development programs, and a few other applications, this option makes sense. But for a family of five selling a house and moving cross-country or around the world, a lump-sum-only package—even a big one—is no longer good business. So why do they exist?
While debating this topic with a senior HR leader a few years back, she told me that a $25,000 lump sum in the hands of a detail-oriented senior manager or director-level employee would be more than enough to accomplish a successful relocation.
I countered: “Wouldn’t we rather have this $100+ per hour employee focus on the details of their job at our company rather than figure out how to be a relocation consultant, hire movers and real estate agents, book travel, find housing in the new location, and do 200 other things—while precisely coordinating the timing of each activity?”
The Cost of Unsupported Moves
A recent white paper published by Benivo discusses the hidden costs, low productivity, and poor job satisfaction for unsupported moves. One of their key findings was that “employees spend up to 89 hours on relocation-related tasks during their initial weeks in a new location, with 69 of these hours occurring during working time.”
This translates to almost two full weeks of lost productivity, costing significant revenue. At an average billing rate of $100 per hour, the total loss per relocation can amount to $6,900. They also point out a negative impact on the employer’s brand and colleague disruption, which I’ve seen firsthand with lump-sum-only approaches.
In regard to disrupting colleagues, the white paper highlights that the employee usually needs extra support during this time. This can lead to an extra 10 hours of lost productivity per move, adding an estimated $1,000 to the total losses, for a combined total of almost $8,000 per employee.
“Considering that, on average, 15% of a company’s headcount moves every year, the lack of support can lead to losses of almost $10 million for every 10,000 employees,” the white paper reports. “Hence, a company with 30,000 employees could spend an additional $30 million per year on lost productivity.”
Some companies might justify this cost with the ease of budgeting for lump sum programs. I solve for this by providing a worst-case amount if every benefit for a cross-country move with a large family is used, paired with our actual, average cost per tier. You can take it further and provide averages based on division, role, or any other variable that adds value.
Just Because We Can Does Not Mean We Should
Some companies clearly don’t see an issue with employees spending their own money to relocate and doing it on company time. But do they fully understand this at leadership levels? Where does cost savings stop and duty of care begin?
Imagine moving a family of four halfway across the world for a visa, plane tickets, seven days in a hotel, USD salary, and a $2,500 lump sum to get started. With no additional resources, how would you feel? It certainly does not guarantee a low-stress, productive start to your new role and your family’s positive integration into their new surroundings.
In one organization I spoke with, it was not uncommon for the hiring manager in the U.S. to pick up their newly arrived team member(s) for work—because no transportation had been provided—drop them off in the evening, and sometimes stop by the grocery store with them. Sure, you can Google where to live and the bus schedule, but how will you get a bank account, Social Security number, and arrange a security deposit? Managers and coworkers get pulled into these transitions. Sometimes it is out of kindness and other times it is an expectation.
Benivo also notes several compliance risks, from tax liabilities to immigration law violations, data breaches, and more. To that list, I would add:
- Risk of poor decision-making: Employees can make questionable choices even in a fully supported move. What happens when they’re left with no guidance and find they’re spending more than what is necessary on big-ticket items?
- Risk of selecting incompetent or even illegitimate vendors: What vetting and research is available to the employee in an unsupported move? If things go sideways with an incompetent or fraudulent vendor, there is little to no resource for the employee or company. This leads to more employee time being wasted, likely during business hours.
An even worse scenario in a lump-sum-only approach is that the employee hands these responsibilities to a significant other—someone who is potentially leaving a job they love, as well as family and friends nearby. Relocations are stressful, even when a couple is fully supported and excited to move. Add school-aged kids into the equation and imagine what kind of experience the entire family is having, or will have, if more stress is added.
Managed Lump Sum Moves
Managed lump sums are a much better approach, but they are not a substitute for an experienced relocation counselor (internal or external) and a managed move. For early career or relatively uncomplicated relocations, this can be an effective solution. Supplier partners are vetted and there are additional tools and resources to aid in planning a relocation.
A less frequent flaw with the lump-sum-only approach is providing too much money but having no way to analyze it. Managed lump sums can give you insights into specific usage.
Relocation management companies (RMCs) have done a good job creating and improving the technology and resources to assist employees in managing their lump sum. They’ve helped fill a void between lump-sum-only and managed relocations, but actual usage rates of managed lump-sum portals and the RMC supplier networks remain low, anecdotally. Companies that integrate the global mobility team’s knowledge and their preferred supplier network into an intuitive platform are gaining traction and can even offer a consultant to assist with the managed lump sum.
Additional Options Up for Debate
Consider a 20,000-pound limit on household goods shipments with a policy that explains a relocating employee will be given a cost estimate and must cover anything over the limit. The downside of this approach is that you automatically penalize people with larger families, which is not equitable. If you are using a lump sum, flat amount for the entire policy, you are also penalizing people who need to move greater distances, which is also not equitable.
Variable lump sums, based on family size, distance, and job level, are a better solution than one-size-fits-all lump sums but still present challenges. How much time and energy are spent on determining the amount? If the goal is low costs and ease of administration, are you measuring this and tracking against employee satisfaction? The employee is still required to subsidize their own relocation. If you are not measuring this, and the lump sum covers the move (and then some), you may be spending too much. RMCs with negotiated contracts for sub-suppliers will always save you money over rates someone finds online, with the added advantage that they coordinate everything.
How Did We Get Here—and How Can We Redirect?
It’s not unusual for leaders to see lump-sum-only moves as a solution to reduce costs. When this scenario comes about, talent mobility professionals need to apply their knowledge and expertise by explaining the implications of this decision, along with alternative approaches to cost reduction.
Company culture, industry, office locations, and desired outcomes for the mobility program are big factors here. If relocation is considered a benefit in your organization and your company prides itself on competitive benefits, how will you tell people they are required to subsidize their own relocation? It’s okay to have policies that require employees to have skin in the game, but they need to know about it up front and have resources to estimate the potential cost to them personally.
As mobility professionals, we have an obligation to align with business objectives and goals, but not to do it blindly. Make a case for providing service and enhancing the employee experience companies talk about so frequently today.
Where do you stand on lump-sum pacakages? For a counterpoint perspective, read "Where Lump Sums Can Play a Role in Talent Mobility," by Robert Church Jr.