Updating Relocation Benefits: Key to Filling Open Executive Positions in a Tough Search Environment

Across the country, organizations with open positions are having difficulty enticing top-notch candidates to take the financial risk entailed in accepting a new job that requires relocation. As a leading search firm in health care, MSA Executive Search has found that many organizations are having to change their search strategies and relocation policies in order to entice qualified candidates.

This article will discuss current trends in relocation benefits, and examine ways that hospitals and health systems can proactively develop relocation policies with the flexibility to provide real help to the executives they need to attract and retain.

Why aren’t current relocation packages working?
Everywhere, every day, there is increasing evidence that the economic landscape is stressed in ways not seen for generations. The uncertainty of selling a home is the first concern raised as we talk with executives about making career changes.

For most of us, a home is a leveraged purchase, and the equity in a home is a substantial part of our net worth. When home prices drop by 25 percent or more, the loss is magnified because the mortgage holder is protected and the loss comes directly from equity, which may be only a fraction of the home’s market value.

In a recent search, an exceptional candidate had paid $1.4 million for a home four years earlier. A recent appraisal showed the home was now worth only $1.1 million. If his downpayment was 50 percent of the cost of the home, he had lost 40 percent of his equity. This was a loss the executive felt he could not absorb. Fortunately, the hiring organization offered a flexible relocation package including a bridge loan and loan forgiveness over five years that made the move possible.

In another recent search and placement, an executive accepted a position with a three-month transition package. Ten months later, her house is still not sold, she is living in an apartment and her family is still across the country in their previous home. Her new employer is at risk of losing this valued executive unless something can be done to enable her family to join her and take the burden of selling her home off her shoulders.

Nationwide, home sales are taking more than 180 days on average to settle. This means that the standard relocation packages hospitals and health systems are accustomed to offering are simply inadequate to meet the needs of executives. Most of the clients we work with are finding they need to make significant changes to their relocation packages in order to fill leadership positions.

How are health care organizations responding to the crisis?
In Oct. 2008, MSA Executive Search conducted a survey to learn how hospitals and health systems are dealing with economic, housing, and credit issues as they fill senior-level executive positions. Survey responses were received from 100 hospitals and health systems across the country.

The survey found that, in the last 12 months, 38 percent of respondents have modified the relocation benefits offered to a candidate at the VP level or above and another 34 percent plan to modify their relocation benefits in the next 12 months. One quarter of the respondents reported that they have lost a candidate at the VP level or above because of relocation. One respondent reported that relocation costs have increased by 30 percent over the last 12 months.

Relocation packages today include certain standard features, the most common of which are:

• Temporary housing
• Moving, packing and unpacking services at both ends of the move
• Lump-sum relocation allowance, in addition to the cost of moving household goods
• Temporary storage of household goods
• Use of a relocation assistance company

Less common relocation benefits are now growing in importance because of the current climate. Thirty-five percent of survey respondents report that they have considered longer commuting arrangements for new executive hires. Other relocation benefits offered or considered by survey respondents include these:

• Signing bonuses
• Expense reimbursement in place of relocation allowance
• Guaranteed home buyouts
• Bridge loans, interest-free loans, loan forgiveness tied to tenure
• Bonuses to replace losses on home sales
• Paying realtor’s commissions, closing costs
• Shorter work week or additional vacation to accommodate travel home

In the current climate, the timeframe for temporary housing is increasing. Forty-three percent of survey respondents say they provide temporary housing for more than three months, and 14 percent provide it for more than 6 months.

The survey also indicated that the most effective approaches to relocation deal with more than housing issues. In the current job market, a spouse’s career and the likelihood of finding employment in a new community can be another serious obstacle to a move. Career counseling and job search assistance for a spouse is quickly becoming a standard practice for hospitals and health systems, in response to today’s economic climate.

"Next practices" in relocation assistance
In our experience, few organizations have proactively prepared for the paradigm shift in relocation of executives we are facing. If your organization’s standard relocation package has not been updated to reflect current conditions or simply has not been modified in some time, then it makes sense to review it before you begin a search to fill an open position.

Begin your review with the policy and standard practice you try to adhere to when making offers. Your executive relocation package is comprehensive if it includes these benefits:

• Packing and moving of all household goods
• Real estate assistance
• Third-party relocation services
• Marketing assistance
• Lump-sum allowance to neutralize home décor (new paint and carpet) or to make the home more appealing (landscaping, staging, etc.)
• Career assistance for spouse
• School assistance from someone with in-depth knowledge of public and private schools in the area
• Family visits to the new community
• Travel for executive to visit family until they can relocate
• Temporary housing
• Storage for household goods while in temporary housing
• Flexible work schedule or additional vacation to facilitate visits home

If you are satisfied with your standard policy, then the board should be creative in responding to individual situations. It is overkill to try to address all possible scenarios within a single standard policy. A more cost effective approach is to remain flexible and open to discussion of the particular needs of each candidate, meeting those needs through the assets of your organization and its board members when possible. But no matter what options your board may be willing to consider, it is important to establish a budget up front.

If enriching your standard relocation package is not realistic, you may want to consider modifying your search strategy to reduce the likelihood of incurring big relocation costs. These are some of the adjustments we have seen boards consider recently:

• Offering a retiring executive a retention package to stay for another year or two
• Giving priority to internal candidates
• Limiting a search to a geographic area where commuting may be realistic
• Looking first at candidates who are out of work and may be flexible
• Recruiting from local competitors

Summary
Boards need to remember that having effective executive leadership in place is key to fulfilling the organization’s mission. Even though recruiting and relocating executives can be expensive at a time when hospitals are under great pressure to reduce costs, investing in outstanding leadership pays off in the long run. In this economic climate, boards need to be creative and flexible in recruiting top executive talent, recognizing that their investment will be recovered through good financial performance in the years ahead.

Ms. Musfeldt (laura.musfeldt@ihstrategies.com) is vice president of the MSA Executive Search practice and can be reached at (800) 821-8481.

About MSA Executive Search
The MSA Executive Search practice of Integrated Healthcare Strategies offers more than 20 years of proven service to the healthcare industry. MSA Executive Search has been repeatedly ranked as one of the Top 15 Retained Search Firms by Modern Healthcare. For additional information, contact the authors.