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Annie Hayes

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Opinion: Spicing up the reward mix with company cars

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Car-related expenditure typically represents 20-25% of total household income which explains why employees welcome the option of company car provision with open arms; Paul Roberts of Momentum Consultancy Services (part of Lex Vehicle Leasing) explains how HR can get the company car element of the reward mix right.


Far too many car schemes fail to truly meet the needs of HR. A contentious statement perhaps but this is true for many organisations, even though HR is most often the function that ‘owns’ car benefit provision.

The overall company car market (including benefit schemes that resemble company car plans but actually circumvent benefit-in-kind legislation) is very buoyant, contrary to the belief of some HR professionals. The scope for employees to determine their tax rate via their car choice (company policy permitting) and employer concerns over employee risk whilst driving on business are two of the main reasons why this benefit is so popular. Of course, in addition, there is no way of getting away from the fact that cars are an important benefit from an employee angle.

Company car schemes, however financed and managed, are clearly shaped and influenced by a range of stakeholders within an organisation.

HR, finance, procurement and core operations will all typically get involved in decisions over policy, providers, financing options and administration. In many businesses, the MD or CEO will input as well.

In addition, organisations will often seek the help of an external tax adviser to supplement their thinking and, in some cases, advisers take centre stage in scheme designs (particularly for those schemes that optimise tax legislation such as structured employee car ownership plans).

The combination of those internal and external decision makers used is determined by factors as diverse as the job need versus status vehicle mix, personal interests in the car scheme, historical ‘ownership’ of the car policy, and the level of knowledge possessed by individuals over company car opportunities and issues.

In practice the resulting car scheme is often out of line with what HR and the business really needs. This is a major issue considering company cars are often the most important benefit from an employee’s perspective and one of the highest benefit costs.

Compensation & Benefit directors talk about reward strategies and benefit principles yet all too often the car policy is out of line with such objectives. This is typically because the policy is out-of-date and hasn’t been looked at with a fresh set of eyes recently – the policy may hark back to the time it was developed several years ago before organisations invested in developing clear benefit strategies.

The other main reason why car policies are often not aligned to benefit strategies is that car policy is either too heavily influenced, or indeed ‘owned’, by a function other than HR. This typically means finance or procurement aiming to reduce costs by making the policy inflexible. When a car benefit is being provided it seems odd to have those managing employee remuneration – the HR function – not managing this area.

Most organisations focus on areas such as reward flexibility, competitiveness, and employee engagement to shape their respective benefits strategy. Let’s take a brief look at these areas in respect of car policy.

Benefit flexibility

Many companies operate car policies which are inflexible and restrict choice. Whilst they may offer a cash alternative to car, many severely limit trading-up and trading-down options and restrict manufacturer choice or model types.

In a world where employees have very differing needs to one another, thanks to age, lifestyle and personal situation, such a restrictive approach is clearly out of line with organisations’ claims to be flexible to staff.

Yes, the company often states a number of reasons, related to operations or image, why their car policy is rigid but such concerns can normally be overcome through careful design of the policy to better align with benefits strategy. Indeed, more and more organisations are integrating car provision to formal flexible benefit programmes where employees can flex between cars and other benefits such as healthcare and pensions.

Benefit competitiveness

Car entitlement and allocation tends to get reviewed once every few years. Typically, organisations shy away from making policy changes based directly on external comparison and instead increase car rental amounts to ensure employees can obtain the same type of car as in the past.

This is often the result of inadequate benchmarking data that doesn’t provide the confidence to set car provision policy at, for instance, the median or upper-quartile against the market – the two positions that most HR functions seem to state they follow with regards to benefit provision.

Few policies are robustly assessed in the context of total reward. For instance, many companies are unaware what percentage of total remuneration the car makes up and thus have little ability to manage the respective benefit elements to produce a desired total cost outcome.

Employee engagement and communication

The need to understand employees’ views on their rewards – both financial and non-financial – has never been greater. However, the vast majority of companies do not explore the large range of reward possibilities that the car scheme provides. This is ironic given that cars are probably the most emotive and certainly the most tangible benefit an employee receives. When was the last time your business ran a focus group or conducted a survey with employees to explore their likes and dislikes with the scheme? Would you say the need to understand their views is important given expenditure in this area?

Benefit communication is commonly the number one priority for compensation professionals – employees just do not fully value their benefit packages although the move to total reward and benefit statements is helping. So often car schemes have a poor reputation. For instance, job-need users (and often HR) don’t view job-need cars as a benefit (as well as a job tool) even though employees use the vehicle outside of work; this undoubtedly affects the required benefit communication approach.

All of the additional benefits a company car driver receives such as insurance, breakdown cover, servicing and relief vehicles are often not communicated as benefits. Average car and car-related benefit costs are £4,000-£6,000 a year per employee which positions this area at the top-end of benefit expenditure; the need to achieve high ROI is clear.

An open-mind, fresh set of eyes and a focus on reward strategy can all help create a value-enhancing car policy that contributes directly to an organisation’s key people objectives. A wealth of opportunities exists for HR to make a difference in this area.

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Annie Hayes

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