Lump Sum Contracts
Lump sum relocation policy has often be seen as a holdall policy that will allow the assignee to use the compensation as he or she would like. As part of the lump sum, you might want to ask your employer how the Cost of Living variation has been integrated and if it is well representing your interest if you are moving to a high-cost area.
Note that lump sum contracts are usually a one-off payment and therefore will not cover the cost of living variation in the following years.
Getting your human resource manager to explain the breakdown of the lump sum will help comfort you in understanding that your employer is trying its best to maintain your standard of living overseas even if it is a one-off payment.
Generally speaking, a lump sum contract is calculated based on your home country's policy for determining a base salary. In addition to the base salary, expats are offered a lump sum of money to apply to items that they value against a specific amount for necessities such as tax payments, housing, etc. Lump sum contracts and calculations are usually offered to expats on short assignments, for example, a 1-3 year contract.
This method of payment is usually better for the expats as they can choose where to spend the bulk of their payments. However, calculations for lump sum contracts can be quite complex and very time-consuming, that companies rarely allow this type of computation for salaries unless under very special and specific circumstance.