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Do away with company cars

Do away with company cars

I have published this article before, but I thought is it important to revisit it again.
Remuneration is at the heart of most governance problems. There are various cases locally and internationally to support this assertion. Those charged with crafting remuneration systems consider their personal interest first before that of the organisation and its shareholders. Some local organisations are in an embarrassing situation where they have to cut salaries because they cannot sustain them. They have not bothered to seek guidance from those with experience in crafting sustainable remuneration systems.

One of the most abused benefits locally is the use of company vehicles. Ironically company vehicles are allocated based on seniority rather than performance. Some of the poor performers are driving top of the range vehicles. What message are we trying to communicate to our lower level employees?

In a survey we carried out we discovered that most companies provide fully expensed company vehicles to their employees based on seniority. All company cars are fully expensed, meaning the company bears all related running costs. However most participants indicated that they were reviewing their policies with the hope of tightening any loopholes to reduce maintenance costs. While the option to buy on replacement is very attractive to employees, some companies indicated that they may be forced to review the replacement years upwards due to budgetary constraints. Those companies with an option to buy on replacement normally dispose the vehicle to the employee at book value while some dispose the vehicle at 20% to 40% of book value. A few companies indicated that they disposed the vehicles at current market values.
The average monthly fuel allocation for managers was 261 litres per month. The maximum fuel allocation cited was 600 litres per month. In the same survey, 34.8% of the participating organisations had no fuel limit for the Chief Executive Officer or Managing Director. For the other levels fuel allocation varied based on seniority.

The question that has been troubling most organisations is whether this model is sustainable considering the current political and economic developments. While this model was sustainable in the past , it may not be sustainable in the current situiation. Organisations need to tighten the loopholes in their company vehciles policies. While this benefit is one of the most attrractive benefits for employees it is also one of the most abused employee benefit. Because employees got huge amounts of fuel they could afford to travel say to Bulawayo from Harare every week at a huge cost to the employer in terms of vehicle maintenance.

Organisations have a number of options to address shortcomings in their vehicle policies. In South Africa for example employee remuneration is treated in terms of total cost to employer. Whatever you get in total cash must be able to cater for your needs including the purchase of the company car at your own cost. However in South Africa credit is readily available such that employees can easily access credit to purchase their own cars. This model can be applied locally if a full cost benefit analysis of this model is applied. The easiest way would be for organisations to provide car loans to all the employees who were supposed to qualify for cars under the previous regime. The loans will be payable over a period of say 10 years. This can start with the valuation of your current fleet which will be sold to employees at market value. After this stage all employees with company assisted vehicles will qualify for a vehicle allowance to cover fuel costs, insurance, and maintenance. Vehicle allowances range from 9% to 25% of monthly basic salary. If this model is applied there is going to be a drastic reduction in vehicle usage by employees. They will start to be more careful because all the money for vehicle usage and maintenance will be coming from their pockets. Some of the fuel allocations given to employees force employees to travel all over because the allocations are too high. If this model is applied correctly there is likely to be a reduction in company vehicle maintenance costs by over 50%. At the same time the company will recover the cost of the car loans through repayments. Employers may also consider giving an option to employees who currently qualify for company vehicles to opt for cash allowances.

Some organisations who are against scraping company cars have argued that company cars add to the company’s balance sheet. While this is true there is need to assess the value derived from such a policy. With most companies facing tight budgets it may be the time to rethink the whole concept of company vehicles.

Memory Nguwi is an Occupational Psychologist, Data Scientist, Speaker, & Managing Consultant- Industrial Psychology Consultants (Pvt) Ltd a management and human resources consulting firm. https://www.linkedin.com/in/memorynguwi/ Phone 481946-48/481950/2900276/2900966 or email: mnguwi@ipcconsultants.com or visit our website at www.ipcconsultants.com

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