Executive Relocation Risks, Mitigation Strategies and Terms to Seek in Your Relocation Package
This article was published in CEO World Magazine on February 20, 2022.
In this age of globalization, job opportunities abound as long as you are willing to relocate. Companies are aware that executive skillsets and experiences are often applied in different places and industries. They can be very creative in talent search and acquisition. As a result, you may at times be offered attractive career opportunities to work in a geographic location that is not near home. However, relocation is no small consideration. It can mean uprooting your family and disrupting your children’s lives and education as well as your spouse’s life and career.
This article addresses issues related to executive relocation, factors you need to consider, negotiating an executive relocation package and ensuring your executive employment terms cover the risks that you are taking to accept this job offer. This article also offers important strategies to mitigate those risks while still securing important opportunities that a remote position might offer you.
Reasons to Relocate for a New Executive Job or Assignment
The reasons and motivation for relocating are many:
- You’ve reached the top of the career ladder at your current company and looking for a new C-level executive job offer or assignment to take your career up a notch.
- The best opportunities in your field of expertise are elsewhere.
- You need a new job and the best offer is elsewhere.
- A company or a talent scout found you and made you an offer.
Most companies will provide a relocation package to help you pay for the costs associated with the move, making the process easy and less time-consuming for you. In the case where the company seeks you out with a job offer or you are otherwise a strong candidate for the position, you would be in a good position to negotiate for a reasonable relocation package, as part of your executive employment terms.
In the next part of this article, I discuss risks involved in relocation and then a strategy for mitigation of those risks. Then, this article returns to that issue of negotiating a relocation package – first, components to seek in a temporary relo package, and then components to seek your permanent relocation package.
Risks You Face in Relocating for a New Executive Position
Even where the reasons and motivation for relocating are strong, caution still needs to be exercised because an executive relocating for a new position takes on important risks.
All too often many of my clients have found on taking a new position, that either the position of the company are not what they expected or as they were represented to them. In one circumstance, the company misrepresented in a material way its financial position, which, once determined by my CFO client, made the job vastly harder and quite unattractive as he worked to keep the company afloat. In another circumstance, the company misrepresented the position of its science, such that my chief medical officer needed to leave as soon as possible to assure that she would not face legal exposure in connection with future misrepresentations.
In other circumstances, my clients have relied upon the oral assurances of a CEO or C-level officer and then found themselves dealing with a new boss after the recruiting CEO or their prior champion had moved on to a different company or assignment, and the new boss would not honor promises made. Often it is even worse, the new boss soon seeks to bring in his or her own team and my client is then asked to leave even though he or she had relocated the whole family in reliance on the position that was supposed to last several years.
Other times, circumstances change, and the job becomes no good through no one’s fault. For example, you join a company based on a certain State or Federal regulatory environment for your product or service, such as expected FDA approval of the company’s new drug. Then that environment changes negatively or expected FDA approval is denied, or perhaps a key customer or financial backer of the company or product is lost. Now, the expectation of reaching your 40% target bonus or seeing a rising value to stock or options is out of the question. All of a sudden, key financial benefits that drove your job acceptance and family relocation have evaporated, and to recoup your financial position and prospects, you may need to move yet again.
Mitigation Strategies to Manage Relocation Risks
Given the various risks that a new position can pose, I generally advise my clients to exercise caution in accepting relocation. This is not always so. If, for example, you are a C-suite executive with a biotech company in Kansas City, and you have many friends and family on one of the coasts, you may very much welcome a company-paid relocation to a biotech hub like Boston or San Diego. But if the situation is reversed, and the big opportunity is in Kansas City and you are relocating away from friends, family and contacts, then the caution I normally advise may well be warranted.
The cautious advice I normally give is that you give the job six months to a year or even longer before committing to a permanent relocation. This will hopefully give you sufficient opportunity to see if this company is really fulfilling your promises and if you fit in a way that you feel this will be a long-term and stable position for you.
Additionally, there have been times when I have counseled clients who felt they already had their dream home and saw little likelihood they would ever move to accept temporary relocation. In such cases, with a year of temporary relocation in place, it gives the company the chance to woo you to make the move, and also gives you the chance to sell the company that you can work increasingly remotely. Over that period, the company may develop sufficient dependence on you that after one year, it may drop any requirement for permanent relocation in order to avoid the risk of losing a key member of its team and having to find and fill your replacement, who might not be as good for the company even if he or she is local.
What to Include in Your Temporary Relo Package
There are six (6) main components I seek to include a temporary relocation package:
- Temporary Residence – the company will provide a furnished apartment or other residence or set up an appropriate amount for you to rent such residence, including parking, cleaning, and upkeep arrangement.
- Transportation – local car rental and air transportation to and from your permanent residence.
- Commuting – allowance for reasonable periodic visits home if your on-site presence is required for any extended period (one month or more).
- Remote Service – allowance for services to be performed from a home office in or near your permanent residence and then commuting costs to the company offices (I often try for 3 or 4 days on site and back at home the other days each week).
- Tax Structure or Gross-up – utilization of IRC Section 119 and other provisions of the tax code to structure temporary residence as company lodging so that it is non-taxable to you and to provide for a tax gross-up to the extent temporary relocation is taxed as ordinary income.
- Term of Temporary Relocation – I typically try to provide for at least six months and if possible nine months, twelve months, or an unlimited period of temporary relocation. Again, if a company develops a dependence, you may then seek a written extension within two months of the end of temporary relo benefits.
What Added Terms to Include for Permanent Relocation
For permanent relocation, a typical executive relocation package may include the following important items:
- Securing a New Home – costs associated with finding a new home, including trips by you and spouse to the new location to find suitable housing prior to relocating, as well as other key components such as schools or daycare for children, along with brokerage, realtor and other associated costs.
- Leaving the Old Home – costs associated with breaking a lease or selling a home. If you are renting a house or apartment, it is very likely that you will have to break the lease and pay an early termination or cancellation cost. If you own your home, then selling the home would include costs such as a real estate agent’s commission, as well as the costs associated with preparing a home for sale, such as appraisals and inspections.
- Moving expenses – this can include costs of packing and shipping household items and goods, moving companies or transporting vehicles, moving insurance, as well as fees for temporary storage.
- Residual Costs – this can include dual mortgages in case you bought your new home before the old home was sold. It can also be included seeking a level of compensation if you must sell your current home at a loss.
Other Considerations Before You Make a Move
Beyond the important career risks set out above and the two types of relocation packages you would seek, don’t overlook these final family considerations that may be equally or even more important to you.
- Is your family fully on board with this important family decision?
- The cost of living of the new location aligns with your finances, which you will maintain if not exceed your current lifestyle.
- How will your spouse’s career be affected?
- How will your children’s lives and education be impacted?
- Is the new location a place you can picture yourself long-term?
- Is this new location a place that can still be of benefit to your career? Is it likely that you could get another comparable position if this company or position is not a long-term fit for you?
Negotiating Your Executive Relocation Package
When you negotiate your executive employment agreement, don’t forget to include work location terms if the new employer is out of state well beyond commuting distance. Many employers will allow you to include terms that expressly allow you to remain in your current residence and work remotely. However, for those distant employers who will not accept your working remotely and require onsite presence, it is important that you seek to include full relocation terms. In that case it is wise to work with an experienced executive employment attorney who can give proper attention to each of these important terms for both temporary and permanent relocation and tax implications as well.
With 25+ years’ experience in executive employment law, I can help you secure the best employment terms. Whether you need a lawyer to review employment contract or to negotiate a new one, contact me at firstname.lastname@example.org or call 617-875-8665.