How have companies changed their workforce mobility programs in the wake of the past year’s real estate market tumult, economic challenges and competitive pressures? Weichert Relocation Resources’s (WRRI) second annual survey of relocation policies and practices reveals the insights and strategies of over 200 HR and corporate relocation professionals, while comparisons to last year’s results (see the Q4-07 Corporate United Quarterly for the 2007 results) show how these strategies are evolving.

Despite a tumultuous real estate market and mounting economic pressures, the need to relocate critical talent is unrelenting and essential to meeting leadership development and business expansion goals. Faced with these and other challenges, today’s companies are retooling their workforce mobility programs and policies to keep their talent management strategies moving fluidly.

As follow up to its 2007 research report, Mobility and the Current Real Estate Market, WRRI recently surveyed corporate relocation and HR managers across North America. The most recent survey was designed to determine the impact of current market challenges on relocation and how companies are responding, and to identify any new best practices that are emerging as a result.

The following report, based on survey responses, offers fascinating insight to how market dynamics and employee attitudes are affecting corporate mobility. In comparing results from 2007 and 2008, we can also chart how companies’ responses have evolved over the past year. The 2008 survey, conducted from February 20 through March 20, yielded over 200 responses from North American employers, the largest number coming from companies with 10,000 to 50,000 full time employees. Both the 2007 and 2008 surveys indicated that the housing market has had the greatest impact on mid-level managers and new hires. Eighty-six percent of respondents indicated that employees in this category are more likely to encounter difficulty selling homes than senior-level management and renters.
 
Time to Re-think the Buyer Value Offer?
Consistent with the 2007 survey results, most respondents are experiencing rising inventory costs and increased requests for policy exceptions.  Unfortunately, this is an indication that companies are still slow to look beyond the status quo and embrace Next Practice policy provisions to minimize inventory increases. On the bright side, fewer companies are reporting somewhat or significantly higher levels of inventory compared to last year.

This year, 64 percent of companies offering a Guaranteed Offer Program (GBO) indicated an increase in inventory, while a whopping 78 percent offering only a Buyer Value Offer (BVO) program said days on market have increased somewhat or significantly, with the average being 130 days.

Originally introduced under favorable market conditions to avoid costly inventory, BVO transactions are now causing excessive policy exceptions, extended temporary living and employee financial and emotional hardships due to extended familial separation.

Duplicate Housing: A Growing Concern
When relocating, employees fail to sell their homes and find themselves required to pay housing expenses in both the departure and destination locations, some companies will make allowances to cover one of the payments being made (typically the lower of the two). Today, with homes taking longer to sell, 62 percent of companies are reimbursing these duplicate housing costs, which can greatly increase the cost of a typical BVO program. More troubling is that, according to WRRI’s survey results, duplicate housing benefits have become increasingly generous and 62 percent of companies providing this benefit are reporting more frequent exceptions. The problems stem from the fact that, in most cases, the employee may not be willing to make the kind of marketing adjustments (such as price reductions) that are required to ensure a timely sale. So with very little control, the company ends up spending an exorbitant amount of money.

 
Sunset Clause
Only a handful of companies (22 percent) are adjusting their BVO programs to include a “sunset clause”— a contractual provision that mandates appraisals and a guaranteed offer after a specified marketing period. The survey asked participating companies to explain the purpose behind implementing a sunset clause. As expected, the majority indicated that it was primarily to avoid the dual risks of an IRS audit and letting homes languish in slow markets.

Home Sale Programs
Today, more companies are tiering their relocation benefits, and the chart below illustrates the wide range of programs being offered. Forty-eight percent of companies maintain tiered home sale programs, while 33 percent provide the traditional guaranteed offer/buyout program and 19 percent offer a BVO exclusively. As suspected, most companies reserve the guaranteed buyout for senior level (defined in a variety of ways) and current employees and provide the BVO to new hires and/or mid-management personnel.

Home Marketing Controls
With the understanding that having accurate, current market data is essential to developing effective home marketing strategies, 38 percent of companies order appraisals immediately. Reflecting the volatility of current real estate markets, 25 percent of companies are rethinking the appraisal process (forecasting sales prices, ranking appraisals, and eliminating the appeals process).

Faced with rising inventories, many companies are leveraging greater control over the home marketing process, controlling transferees’ actions up front in order to minimize costs. The following survey results reveal the use of the most important cost control strategies increased over the last year:

Among the companies that establish list price guidelines, the largest percentage of respondents (73 percent) require the initial list price to be no greater than 105 percent of the Broker’s Price Opinion/Appraised Value. Additionally, more companies are requiring subsequent list price reductions to 103 percent or 100 percent of the appraised value.

Creating Demand
The research reflects that the most effective way to avoid inventory is to create demand for your employees’ homes. So what are companies doing to stimulate demand? For those companies providing a GBO program, 55 percent are offering incentives or a bonus during the self-marketing period; for those companies providing BVO programs, the practice slips to 35 percent. Ninety-one percent report providing a percent of the home sale, 45 percent offer a 2 percent bonus, and the rest range from a low of 1 percent to a high of 3 percent. Quite a few companies provide an adjustable bonus—i.e., 2 percent before appraisals and 1 percent after appraisals, or 3 percent within 30 days, 2 percent within 60 days and 1 percent within 90 days.

Employee Incentives
It appears more companies are providing broker incentives (28 percent vs. 24 percent in 2007). But, consistent with

our “Next Practice” recommendations, more companies are offering buyer incentives (27 percent in 2008 vs. only 16 percent in 2007).

Once a home comes into inventory, almost half of the respondents (47 percent) offer buyer incentives. But why wait? Once a home hits inventory, costs and challenges start compounding exponentially; mounting days on market make the home appear shop worn and vacant homes rarely show as well as they did when lived in. WRRI maintains that it is more cost-effective to provide employee, buyer and/or broker incentives during the employee’s self-marketing period when the advantages are amplified; creating demand, increasing negotiating room, improving employee satisfaction (they will be happier qualifying for a home sale bonus) and, ultimately, reducing costs.

Loss-on-Sale
When real estate markets were favorable, few companies had to cover loss-on-sale. Today, after 25 months of price declines, this simply is not the case. Compounding the problem, fast track employees who maxed out their financing and/or bought new construction may be particularly hard hit. The survey results indicate that 68 percent of companies provide loss on sale assistance. Although the number of companies that reported administering loss-on-sale on a case-by-case basis decreased from 34 percent in 2007 to 21 percent in 2008, there is still a wide range of caps, thresholds, and eligibility criteria.

Among those companies with a loss-on-sale policy, 75 percent do not include capital improvements—a 10 percent increase over last year. However, the number of companies that cap their assistance decreased from 86 percent in 2007 to 79 percent in 2008, with the majority establishing a dollar (versus a percentage) cap.

Negative Equity
Overly optimistic borrowers caught in declining markets are increasingly susceptible to negative equity situations, especially if they haven’t lived in their home long enough to realize appreciating value. Despite a significant increase in occurrence, the largest percentage of companies (47 percent) indicate it is the employee’s responsibility to pay off the mortgage (down from 48 percent in 2007). Another 45 percent handle these situations on a case-by-case basis, some requiring senior management approval, providing compensation outside relocation or providing company loans.

Conclusion
With many economists forecasting a soft real estate market throughout 2008 and into early 2009, relocation costs are bound to increase. Creating demand for employee homes is the single most important strategy for controlling overall costs, and the results of this survey indicate that companies are exercising greater control over the variables (like price, listing agent, buyer demand) that have the most impact on home sale activity. Similar to trends in health care cost control, the WRRI research indicates companies are moving toward an “HMO model”; requiring employees to work with “in network” providers, mandating listing and marketing strategies and rewarding employees with incentives or more generous reimbursements when they adhere to cost saving policies. These strategies will have a positive impact on the overall health and efficiency of a corporate relocation program.

Further, despite a propensity to rely on benchmark data, WRRI sees evidence of a new “best practice” emerging— one that recognizes the importance of creative solutions that optimize talent management regardless of market conditions by effectively balancing employee concerns, cost containment and efficient program administration. Especially under current market conditions, companies must become serial innovators, relying less on how they’ve always done things in regard to corporate relocation and targeting goals that lie beyond today’s best practices. The data uncovered in this survey should assist many companies in developing and implementing best practice policies that will minimize future costs and risks.