This is a question with which clients often struggle. There is almost always a trade-offs analysis required when hiring executive talent into growing businesses.
In the olden days, only 2 options existed—(1) Hire a local candidate who already lived "in situ" or, (2) relocate a candidate, lock-stock-and-barrel. Now in the 21st century, there is yet a 3rd "commuting executive option" that's crept into the calculus.
Why? Executives can be in touch with their customers, teams and board directors wherever and whenever needed, with zero "downtime." This has been powered by ubiquity of technology--wifi in air and voice-activated mobile access on the roads. In addition, long-distance transportation has changed a great deal. The advent of "air taxis," and all-you-can-eat flat monthly commuter services mean you can have an executive that lives in Boston and commutes to NY, or in LA and commutes to San Francisco via Surf Air, Beacon or Rise.
In the olden days...
It used to be that executives were usually of an age that they were married and had children, house, cars, and a more complicated (and expensive) lifestyle. Relocating an executive with all this in tow came at a pretty penny. Depending upon the distance an executive needs to relocate, $25,000 was probably the bare minimum, and 50K or 75K was more the norm with circumstances sometimes pushing relo costs to more than $100,000 for an executive who earned 150-300K as a salary. Large corporations were used to these price tags, and built it into "cost of ownership" calculations when executives used to stay for 10 or 20 years and often worked at a single company until it was time for the gold watch. However, smaller companies looking to top-grade their executive ranks to fortify for additional growth and expansion are often shocked at these costs. How could it cost that much? How much can a U-Haul cost, anyway they often ask? The reality is that in our modern age of larger houses with bigger square-footage, relocating a typical 3,000 square foot home's contents, plus car(s), and the optional cost of professional packers to safely bundle all these goods into a large moving van will often run $10,000 or more, and that's before the mileage costs then charged to haul those goods however far the relocating executive has to go. [Example: 300+ mile move from San Francisco to Los Angeles for 3 bedrooms home with no cars included and partial packing assistance is $5,000]
Other relo costs to consider include:
- House hunting trips with spouse and/or family (2K to 5K per trip, often 2 or 3 trips to find the right house)
- Interim housing for the executive while children finish up a school year, $1,000 to $3,000 a month depending upon cost of living in a given metro or regional area (Major metro areas at higher end, shoulder cities and secondary markets on the lower end)
- Buying/selling costs of a residence. This likely has the largest range from zero to huge. What is often negotiated in relo packages on a bespoke basis includes cost of real estate commission on the house being sold, other seller closing costs incurred, mortgage points on the new mortgage for new house, etc. On a 500K house, a 5% commission paid by seller is 25K. 5 points on a 500K new purchase (1% of mortgage amount to buy down the interest rate) can be another 10K. And closing costs on the new house will likely run another 1% of amount being borrowed (4-5K in our example).
- Increase/decrease in cost of living. Often, when relocating a candidate from one place to another, "cost of living" becomes a critical consideration for the candidate. If they were earning 250K in a shoulder city (no major metro area in the US) and are moving into region with higher cost of living, grossing up their compensation to allow for same buying power is often essential to make the relocation math work. See here to run these to/from calculations.
If all of these relocation costs seem too expensive, and you can't find the talent you need local to the business being built, what to do? Revisit paragraph 1 and seriously consider Option #3, what is fast becoming the "new normal" in today's virtual, Slack-powered, Skype video viewed, Google hang-out fueled economy where the beat never stops, no matter WHERE you are or what time zone you're in.
