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We are planning to relocate an Executive level position at our company from Southern California to Northern California and I'd like to know what typical relocation package include for Executives.
Hello and thanks for asking for a typical relocation package for an executive moving from Southern California to Northern California.
Even though there are no specific resources that only focus on executive relocation, extensive information is available on how to determine the relocation package and what to include or exclude. Especially helpful was a sample relocation policy with calculations, different relocation options and the cost of living difference between Southern and Northern California.
Firstly, you should focus on the relocation aspects in the employment contract.
EMPLOYMENT CONTRACT
The employee contract sets out the legal relationship between the employer and the employee, and must be amended to included the details of any new assignment, such as the duration and agreed location. The contract must also indicate which benefits of employment will continue in the new location and whether the employee will return to the current location at some stage.
If a new contract of employment is required, it should include the employee’s new job title, reporting structure and roles and responsibilities expected of that employee. Additionally you should include agreed performance criteria, including commercial targets and KPIs if required.
RELOCATION BENEFITS
The purpose of relocation benefits in a relocation package are to make the deal attractive to the employee without any loss of living standard on the one hand, while also maximising efficiency for the employer. A common approach to create this balance between the employee and the company's needs is the ‘balance sheet approach’, where the aim is to provide the same net standard of living to the relocated employee as at home, including variables such as cost of housing and cost of living.
We can divide relocation benefits into standard benefits and optional benefits.
STANDARD BENEFITS
Standard benefits that should be included in all relocation packages are:
1. Transport of Goods: This includes packing, loading, moving and unpacking of all the items in the employee's household. It can also include the cost of storage if there is a gap between moving out of the old house into the new.
2. Transport of Automobiles: This will typically include the transport of one automobile for a move of more than 500 miles and two for a move of more than 800 miles.
3. Temporary Living: By providing a relocated employee with a temporary living benefit, it provides more time to find a new house and sell the old house. Typically this will be for a duration of 90 days with a provision to extend to 6 months.
4. House and School Hunting Trip: This gives the relocated employee the opportunity to get into contact with realtors early to find a new house. They can also scout schools in the new area for any children in the family.
5. Home Sale Assistance: Assistance with the payment of closing costs and commissions associated with the sale of the home.
6. Loss of Sale Assistance: If the employee is forced to sell the old house for less than the purchase price, the employer may assist in the paying the difference.
7. Lease Break Coverage: In the case where the employee is renting his/her current property, the employer will pay any penalties incurred in breaking the lease early.
8. Gross Up: When the employer provides a cash relocation package, it is viewed as income for tax purposes. Therefore the employer can reimburse the tax liability to the employee so that the full amount can go to the relocation costs.
9. Home Buying Assistance: The employer can also assist with the payment of closing costs, or other fees on the purchase of a new home once the employee has relocated.
OPTIONAL BENEFITS
As you are planning to relocate a company executive, you may want to consider these additional relocation benefits that can be offered:
1. Reimbursed transportation: Transportation for the employee's family to the new location by plane, train or automobile can also be reimbursed by the employer.
2. Miscellaneous Expenses: The employee can incur out-of-pocket expenses like carpet cleaning or utility hookups and this is often covered by the employer, with a typical maximum of $1,000.
3. Spousal job support: In the case where the employee's spouse has to find new employment once relocated, the employer can offer employment assistance for an accompanying spouse or partner.
COST OF LIVING COMPARISON
When establishing the value of a relocation package, it is also prudent to consider cost of living differences and regional salary differences. As can be seen from the comparison of Los Angeles and San Francisco, both rent and home prices are significantly higher in San Francisco compared to Los Angeles. By using a ‘balance sheet approach’, it is possible to compare the cost of living for the two locations, using specific variables that apply to the employee that is relocating, such as the cost of child care and fitness clubs.
For example, one would require around $8,034 in San Francisco to maintain the same standard of living sustained by $5,400 in Los Angeles. This cost of living differential can be factored in to determine whether the employee's salary needs to be adjusted for the new location in the form of a relocation allowance.
CONCLUSION
In order to determine the relocation package for an executive, you should apply the standard relocation benefits and decide which of the optional benefits apply to the specific situation. If there is a significant cost of living differential between the two locations, you can also consider adjusting the salary of the executive to accommodate the cost of living in the new location.
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