Lump sum policies have been around for a while in the global mobility world and are certainly not the most glamorous sounding option. On the face of it, it sounds like a simple process. The assignee is given a set amount of money by their employer, which is to be used to cover expenses involved in the relocation process.
The amount of money depends on a number of factors, including seniority level of the employee, household size of the relocating employee, and the destination/distance of the relocation. The employee is usually responsible for organising the relocation services required themselves. So far, so simple – but what are the benefits, and pitfalls of this type of policy?
One of the advantages of a lump sum policy is that it allows the assignee a certain amount of flexibility in choosing the services that are right for them. In turn, this gives the assignee a greater feeling of control over their relocation process and can help alleviate some anxiety around the move.
With the fixed lump sum policy, there is also the bonus of less administration, both for the global mobility department and the assignee. The assignee does not have to worry about reporting expenses to their employer, and Mobility teams have few exception requests and are able to spend less time coordinating other services.
Lump sum programs can also help with cost control. If each assignee gets a fixed amount, paid to them in one go, unexpected or extra expenses are kept to a minimum, and this type of policy requires minimal reporting.
As with all types of global mobility policies, there is no perfect solution, and lump sum policies are not without their drawbacks…
Handing an employee a (sometimes significant) sum of money, and leaving them to their own devices when it comes to organising their relocation can spell disaster, particularly if this is something that the employee has never done before. Relocating is a stressful process, and if the employee feels as though they are not being adequately supported by their employer this can only make things worse. Poor management of the funds provided can also cause issues for employers if they must provide an extra allowance for an essential service that has been overlooked by the employee.
A lack of tracking where/how funds are spent can also make fixed lump sum policies less efficient for cost control than they initially seem. Employees usually retain any leftover funds from the lump sum, so companies may be overspending on their lump sums without even realising. Employees may also not have the time or experience to find the best value service, meaning that the lump sum does not go as far as it could.
So, given the relative pros and cons of a lump sum policy, where can they be used effectively? Lump sum policies are commonly used for graduates or entry level employees. Individuals moving from their college dorm or family home for their first job typically do not have a large amount of household items that they need to take with them, so a lump sum can allow them to spend the funds where they need them the most, such as plane tickets or a rental deposit for a new pad.
For more experienced or executive level employees, a Core-Flex policy can be a better choice. Check out our blog on this type of policy here.
Written by Sophie Watkins – Recruitment Consultant & Special Projects at Alchemy Global Talent Solutions.