By JOHN BRINSLEY
Staff Reporter
There was the prospective CEO who turned down a job offer in L.A. because he couldn’t afford the equivalent of the three-acre spread he enjoyed in Illinois. And the executive who wouldn’t move here from Texas because his wife was convinced that California was about to slide into the Pacific.
Persuading top executives to relocate here still takes some doing, which means companies must go beyond straight salary and options packages no matter how attractive in order to lure talent.
That includes offering bridge loans, signing bonuses and financial assistance on mortgage payments.
“It’s not as difficult to recruit (to L.A.) as it was two or three years ago, but it still isn’t easy,” said Neal L. Maslan, managing partner at LAI Worldwide, an executive search firm in Encino specializing in the health care, venture capital, technology and communications industries. The high cost of living and concerns about schools for people with children remain critical issues.
Some companies offer so-called 3-2-1 buydowns. In addition to paying for the “points” above the agreed-upon mortgage rate, the company pays 3 percentage points of the executive’s mortgage the first year, 2 percentage points the second year and 1 percentage point the third year.
Companies might also agree to pay a signing bonus over a three-year period. This form of assistance generally assures that the executive will stay at least three years.
“If you have a mortgage at 7 percent, effectively it is 4 percent the first year, 5 percent the second year and 6 percent the third year,” said Denise DeMan-Williams, chief executive of Bench International Search Inc., which places executives in the various pharmaceutical and biotechnology fields. “If an employee leaves before three years, he has to pay the company back out of the proceeds from selling the house.”
Family issues are often the biggest consideration when it comes to recruiting executives especially those with school-age children. For them, the poor reputation of L.A.’s school system has been one of the biggest drawbacks.
“Schools are often a major deterrent,” DeMan-Williams said. “I’ve had to assist with financial aid for parochial schools or private schools. I’ve had companies pay as much as 50 percent of private tuition for two or three years.”
Maslan said education was a concern for a candidate who had considered a CEO spot at a $1.5 billion company based in the South Bay. The candidate pulled his name from the running because of cost concerns over moving his wife and six children from Lake Forest, Ill.
“A $1 million house there is $3 million here,” Maslan said. “There were concerns over public education, and they looked all over Torrance and South Bay and couldn’t find a house.”
Attention to family concerns can also extend to helping the spouse of the prospective executive find employment in the area.
“Often, companies are looking to relocate two professionals, not just one, so you have to look for career opportunities for the other partner,” said Alan Dias, president of PRM Inc., a relocation management firm. “Relocating the partner has to be considered when putting together any package.”
Tony Pfannkuche, senior director at SpencerStuart & Associates, agreed that lifestyle concerns are critical.
“In the recruiting process, the client will bring the family out on one or even several trips, and the company will provide relocation advice to understand the neighborhoods and what the various options are,” Pfannkuche said. “There are professional relocation programs, and they have proven to be valuable. Our most sophisticated clients understand that by investing in these programs they achieve a higher rate of success and satisfaction with the people they are trying to hire.”
Of course, many of today’s compensation packages are based on the proposition that things might not work out or at the least, that they might change. That’s the basis, for example, of deferred compensation when there is a change in management.
“That way, if there is a change in control, the long-term wealth is still available,” said Robert S. Rollo, who heads R. Rollo Associates. “And a severance agreement is always built in (to the contract).”
Some companies take all of the deferred money and invest it, so the employee doesn’t have to pay taxes until it is withdrawn. In the meantime, the dividends are reinvested.
“Pretax money is invested, so big (executives) get twice as much in dividends. Even if the tax bite is big at the end, you’ve borrowed from the government for 10 years,” Rollo said.
Pfannkuche said “a lot of our corporate clients are creating custom-designed programs to meet the circumstance of (hiring and moving) a new employee. The point is, if you hire a senior executive, you want him on the job, thinking about the job and having an impact from day one.”
