While the real estate market shows signs of improvement in some markets, many employees who are homeowners still remain reluctant to relocate. Not only do they face potential losses with the sale of their current home, they also may not have the equity to purchase a new home.
Further, due to the restrictions required by the Dodd–Frank Wall Street Reform and Consumer Protection Act, current homeowners may not qualify for mortgages in the destination location.
However, there is hope. Rather than an employee decline the relocation due to loss of homeownership, companies can elect to incorporate an Incentive to Rent bonus into their policies to encourage employees to move.
An Incent to Rent bonus is one where the company encourages transferees who are current homeowners to rent in the destination location rather than purchase. According to Worldwide ERC’s 2012 Transfer Volume and Cost Survey, published in Autumn, 2012, nearly three-fourths of companies (72 percent) report seeing an increase over the past three years of home owning transferees choosing to rent in the new location, instead of buying a home. However, only 7 percent encourage the practice of renting for a set period in the new location via formal policy for transferees who are likely to be relocated again. Another 16 percent do so on a case-by-case basis.
Among those organizations who do encourage renting, slightly more than one-fourth (26 percent) offer the transferee a financial incentive to do so. Three-fourths of these firms require a set rental time period, an average of 20 months, before the incentive is paid. One-fourth pay a lump sum incentive that averages $6,000, while 75 percent pay another amount based on varying factors including formulas, local HHG shipment and one month’s rent.
Incentives to rent can provide benefits to both the transferring employee and to the company:
The employee likely does not need as much cash to secure a rental home in the destination location than if he/she purchased a home.
The company is able to attract and retain top talent without the perception of a loss of relocation benefits.
As many markets are still recovering from the latest recession, companies may save funds that would have been allocated toward Loss on Sale benefits for a subsequent relocation.
Employees who are expected to relocate within 2-3 years are able to establish a new home in the destination location and will be able to move more quickly during the subsequent relocation.
However, to ensure the success of the Incent to Rent program, it is important to establish ground rules. Some examples for consideration include the following:
The employee must be a current homeowner in order to receive the bonus.
The bonus should be extended to employees who are only anticipated to remain in the destination location for a relatively short amount of time (for example, 2-3 years). If the employee stays in the destination location longer with no anticipated move date after 2-3 years, consider reimbursing home purchase assistance at that time.
Homeowner employees should still be considered homeowners during the current relocation for benefits such as the Miscellaneous Expense Allowance.
Employees should be afforded homeowner benefits in a subsequent relocation. For example, an employee who rents now should be afforded home purchase assistance during the next move. Relocation allowances, if based on renter/homeownership, should also be considered.
Incentive to Rent programs provide an alternative for qualified talent to relocate to benefit the organization. However, one thing to keep in mind is that the employee may not feel as connected to the company because they have not established roots in the destination location.
Also, by “missing out” on home purchase benefits or because they will not qualify for homeowner benefits in a subsequent relocation, an employee may not feel valued by the company. This perception is mostly noticed when companies tier their policies based on renter and homeownership, where the employee may qualify for longer temporary housing, duplicate housing, and home finding trip days, as well as a larger miscellaneous expense allowance as a homeowner. However, structuring an employment plan with a corresponding relocation benefits package including an Incent to Rent program is mutually advantageous to the employee and the company.
For further information on Incent to Rent bonus programs, or to learn more about incorporating this component into your relocation policy, please contact your Lexicon account manager or sales representative.