Unsustainable Lump Sum

Why lump sum compensation for overseas expats might be unsustainable in the long run

The simple answer, so they say, is often the right answer. So when deciding how to compensate employees for the expense of moving overseas, the straightforward lump sum approach is understandably popular. Calculate a figure, agree it with the assignee, and leave them to it. According to 2020 research by Cartus, almost one in three international assignments are funded this way.

Let the buyer beware

Another attractive quality of the lump sum is that it reduces the overall cost. Beyond the lump sum itself, the employer spends very little time, money or effort on the move because responsibility has been devolved to the assignee. The assignee, in turn, is able to spend the money as they see fit – and pocket the remainder if they are frugal. But, to coin another phrase, if a deal seems too good to be true, it probably isn’t.

Taking the sustainability dimension into account

If a corporate department spends money, they do so according to well-established processes – and strictly in line with relevant corporate policies. One compliance topic that is gaining momentum is corporate sustainability; increasingly, we are seeing large global employers keen to minimise the carbon footprint of each assignment where they can, for example by insisting on eco-friendly packaging. In terms of sustainability, international moves are under increasing scrutiny.

An individual, by contrast, is either less aware of the need for sustainable practices when organising a move, or simply less inclined to observe them when they realise they cost more.

This means that a lump sum-funded move runs the risk of compromising the company’s proudly stated environmental policies. In a world where the world’s largest organisations are frequently criticised for greenwashing, bad news is going to travel fast if it gets out. Worse still, as national governments and regions such as the EU consider legislation to enforce sustainable business activities, such actions could attract fines as well as bad publicity.

Ironing out the lumps

To address this problem, employers may be forced to spend more time and money educating and guiding their assignees on how to manage their lump sum – thereby undoing the benefit of the approach. Another option is the “managed lump sum” where a relocation management company would take the money instead and manage it on the assignee’s behalf. But whether the budget management role is performed by the employer or by an outsourced partner, it will still attract a fee which is likely to make the whole approach less popular.

As general awareness and availability of sustainable practices grows, assignees will be more likely to spend their lump sum on responsible, sustainable moving. But global organisations should remember that, while they may pass responsibility for management to the assignee, the buck will still stop with them if it goes wrong. And as environmental regulations become ever more stringent, they may realise that the lump sum approach is not sustainable in the long run.

Photo by Alexander Grey on Unsplash