Housing is one of the most expensive items in any expatriate compensation package, and a critical factor in the overall satisfaction of the relocating assignee and family, to the extent that dissatisfaction with the choice of housing can make the difference between a successful assignment and a failed one.
The ongoing challenge for companies when relocating employees is to balance the need for cost control and demonstrating ROI with a housing policy that balances affordability while enabling assignees to find housing which is appropriate for their families, job role and responsibilities within the housing market norms in the host location. This is a far from straightforward task.
Results from global surveys of International Assignment Policies (such as from Mercer) show that over 80% of companies provide a housing allowance/benefit to their long-term assignees, with a further 12% providing an allowance or benefit depending on job role, or on an ad-hoc basis.
While providing a housing allowance or benefit to long-term assignees is therefore almost universal practice among employers, the methodology of calculating these allowances varies widely as do the policies used to manage the allowances, and the way that exceptions are managed by the mobility teams within these businesses.
Calculating Housing Allowances
Mercer surveys have shown that, when determining the housing allowance budget, a majority of participating companies take into account the family size and the assignee’s position or income level. Just under a third take only the family size into consideration, and a small minority only consider the position or income level. Other options, such as paying the same fixed amount to all assignees, are even less common.
Free Housing vs. Housing Differentials
Surveys have shown that companies are split over the question of providing "free" housing or instead paying a housing differential. In other words, calculating the housing allowance as the difference between the rental budget in the host assignment location and a home housing norm (usually an average amount paid by employees in their home country.)
The differential idea is easily understood in the context of a “no win, no loss” balance sheet approach: the assignee would have had housing costs prior to their assignment, so why should their housing be free of charge while they are on assignment in the host country?
However, individual circumstances are often more complicated and assignees may retain housing costs in their home country - for example where part of the family stays at home, or come from countries where market conditions make locating a suitable property when returning home may be challenging, or in situations where assignments could end at short notice.
The application, or otherwise, of a housing differential is also linked to whether the company assists the employee with his/her home-country housing. Historically, American companies have been more likely to offer assistance when employees are selling their home-country accommodation than European companies, but they are also more likely than European companies to deduct a home-housing norm.
Conversely, European companies are more likely to avoid any involvement with employee home-country housing issues and prefer to pay for "free" housing rather than applying a differential. Some European companies actually prefer to have slightly lower housing budgets, but then avoid the complexities of calculating and communicating (and explaining to employees) a differential.
Every global mobility professional will confirm that expectation setting and management is a key part of any assignment planning discussion. Has the company promised the same lifestyle or an international lifestyle to potential assignees? Will this instantly cause an expectation gap in terms of what the host location can provide?
For instance, the same lifestyle as in their home country could mean a big house and two cars for an American employee going to central Tokyo on assignment, or extensive domestic help for an Indian going to the UK. Either of these scenarios creates potential issues of cost, additional compliance requirements and also risks a negative reaction from local employees in the host country, for whom such perks would be unaffordable.
Check the understanding of the policy by host HR, line management, and the Destination Service Provider (DSP). If the message that assignees receive in the host location differs from that provided by the global mobility team at briefing stage, this can create confusion or build unrealistic expectations. It is vital that a consistent message is given to the employee and family by all stakeholders throughout the pre-assignment process.
Destination Services Good Practice
It is good practice is to ensure that DSPs receive clear guidelines - such as the minimum/maximum number of properties that may be viewed by assignees, and whether properties above the housing budget may be included within the home search tour - so that the performance of the DSP can be reviewed against these guidelines. In practice, DSP's are likely to be grateful for such guidance, for the avoidance of grey areas when delivering services.
Assignee satisfaction is an important measure of the performance of the DSP, but this can be combined with more objective criteria to monitor cost implications - such as an assessment of the percentage of home searches completed where the rental accommodation has been secured within the housing budget.
Respondents to the Mercer survey state that the housing allowance is the policy item for which the highest number of exceptions is requested, and also one of the exceptions most likely to be granted. Temporary Housing was the third highest category for which exceptions are requested.
Long-term accommodation and temporary housing are both high cost items within the overall cost of an assignment programme, and considering some of the approaches suggested above could provide significant cost efficiencies for a typical global mobility programme.
For the full article and a link to the Mercer survey, please follow the link below: