Recent Worldwide ERC® data shows that the average cost for a company to relocate a current homeowner employee within the U.S. is $79,425. International assignments are more complex, and not surprisingly, more expensive, sometimes costing employers $1m or more.
It has always been important for companies to protect this substantial investment, but the continuing talent shortage has added another imperative: your best and brightest employees—the ones you are most likely to relocate or to send on assignment—are prime targets of your competitors. They would be happy to capitalize on your investment in your employees, particularly when it comes to international assignment experience.
It is worthwhile to do everything you can to protect your investment in your employees. From a mobility perspective, this protection typically comes in the form of a repayment agreement, which the employee must sign when he or she accepts an offer and before the company incurs any relocation expenses.
Currently, 92 percent of TRC’s clients utilize some form of repayment agreement for all of their relocations. The minority of companies that opt not to utilize repayment agreements often reason that their turnover rate is very low, or they fear that implementing a repayment agreement may reduce relocation acceptance rates.
What is a Repayment Agreement?
A repayment agreement is a legally enforceable document typically stating that should the employee resign voluntarily or be terminated by the company for cause within a specific period of time following the completion of a domestic or international relocation, the employee agrees to pay back the relocation expenses that were disbursed by the company on his or her behalf. Some repayment agreements apply only to resignations and omit terminations for cause. The reasoning is that if the company has chosen its talent wisely, there should not be any ‘for cause’ terminations.
Typical Timeframe of Repayment Agreements
For both international and domestic relocations, the current best practice for repayment agreements is a two-year term. For international assignments, the applicable agreement period typically includes the duration of the assignment as well as a specific term after repatriation.
In the case of a two-year repayment agreement, if the employee leaves or is terminated during the first year, he or she is responsible for 100 percent of the company-paid relocation expenses. If the departure or termination occurs during months 13 to 24, the relocation expenses are usually pro-rated on an equal monthly basis. (Alternatively, some companies opt for a flat, 50 percent reimbursement plan for months 13 to 24.)
Some industries face unusually high turnover rates, including energy, IT and retail. Companies in these industries may choose to utilize a three-year repayment agreement to discourage this turnover. Finally, a smaller number of companies use a one-year agreement.
How are Repayment Agreements Administered?
Companies can manage their repayment agreements and process in-house or allow their third-party relocation management company (RMC) to handle this. The key is not to disburse any relocation benefits until the employee signs and returns the agreement. The employer and the RMC (if applicable) should save the agreement until the repayment period has officially expired.
The company should have a specific process in place to enforce the repayment agreement should this become necessary, including how the company will initiate the collection process, how it will communicate with the former employee and how and when follow-up efforts will occur.
Companies should strive for consistent, fair administration of their repayment agreements. If a company has failed to enforce repayment agreements when employees leave or are terminated, it is very likely that current employees will know that this has been the case and will not take their own repayment agreements seriously. If a repayment agreement is in place, the company should enforce it consistently for anyone who violates the terms of the agreement, whether the employee is entry level or senior management.
Is a Repayment Agreement Appropriate for Your Company?
A well-designed repayment agreement can help companies to protect the investment they make in relocating employees or sending them on international assignments. The agreement clarifies the terms of the relocation or assignment and helps to ensure that the employee is committed to the company for a set period following the assignment.
In a very competitive market for talent, repayment agreements can also help avert immediate employee defections to a competitor upon completing an assignment. Repayment agreements are just one more tool to codify and professionalize a relocation program and ensure it is helping the company to achieve its talent management objectives.
