Putting company car policies to the test
Company cars are highly desired status symbols for non-tariff employees. However, changing employee preferences, technological advance and greater environmental awareness mean that companies need to take action in this area.
Company cars are often given to sales representatives who have to make frequent road trips. But they are also highly desired status symbols for non-tariff employees. Changing employee preferences, technological advance and greater environmental awareness mean that companies need to take action in this area. hkp/// group experts Carsten Schlichting and David Voggeser spoke to hkp.com about what companies need to remember when reviewing or rewriting their company car policies.
hkp.com: In Germany cars are still an important status symbol. How can companies turn this to their advantage?
Carsten Schlichting: Giving company cars to certain groups of employees functions as a strong impulse for career development, similar to increases in fixed and variable compensation. The chance of getting a company car or a better model of vehicle when you reach a certain point in your career is a strong incentive for employees – particularly as vehicles are such highly visible symbols.
David Voggeser: The typical market prices for buying or leasing different vehicles plays an important role regarding differentiation of employee performance, as with other compensation tools. Yet many businesses, especially small and medium-sized enterprises, have not yet brought their company car policies up to date with the current developments and trends.
You have gathered a lot of experience from client projects and know about current market practices from your own studies. What drives change when it comes to company car policies? How should fleet managers be reacting?
Carsten Schlichting: From our projects and studies we know that environmental protection is becoming more and more important as a topic. If you have a very large fleet of vehicles, even small savings in individual areas can lead to significant cost reductions overall. Often the first step is to incorporate CO2 limits into the company car policy – without making the vehicles less attractive of course.
David Voggeser: E-mobility is another trend. Electric and hybrid vehicles are increasingly popular and the supporting infrastructure is improving all the time. Such vehicles are now a serious alternative to traditional cars.
Companies can reduce their environmental footprint and also use this to improve their image…
David Voggeser: Exactly. Another option is downsizing – creating incentives for employees to order vehicles with a smaller engine size than the maximum possible. That's also part of an environmentally friendly approach.
So, it's a good idea for firms to review and potentially rewrite their existing company car policy. What challenges does that bring with it?
David Voggeser: If a firm decides to rewrite its company car policy, it first needs to identify which details are no longer up-to-date, attractive or cost-effective. That might include reviewing who exactly is entitled to a company car, the amount of freedom given to staff when choosing a particular vehicle, the specifications, type of engine, etc. The detail is critical.
Carsten Schlichting: Companies have many ways in which they can influence the vehicles that their employees choose and the way they use them. Traditionally convertibles, coupes and recreational vehicles are not allowed as the vehicle is supposed to be used for business, whereas SUVs are now generally permitted despite initial resistance, due to their popularity on the market.
What about the ecological details? Do board members still drive big sedans while the rest of the staff have to correct the company's environmental balance by driving vehicles with smaller engines?
David Voggeser: No. Here, we are seeing a general tendency towards reducing CO2 limits irrespective of position in the hierarchy. However, most of the time the specific limits depend on the hierarchy level. The customary limit is currently around 170 g/km for the first level below the board, and 150 g/km for the second level, although these levels represent just the beginning of a process of further reduction.
Will companies have to provide charging points for electric vehicles in the future?
Carsten Schlichting: Firms need to come up with smart solutions for promoting e-mobility, including providing electricity. Installing sufficient charging points is essential. They must also make it clear what charging costs they will pay for – which is not as straightforward as with traditional fossil fuels.
Are there any other interesting developments with regard to company car policies?
David Voggeser: In our current project work we come across two fundamentally contradictory philosophies with regard to company car policies. Some firms want to reduce complexity and just provide a minimal framework in the policy. The idea is that they then decide on a case-by-case basis or they deliberately make such judgments part of the manager in question's decision-making authority. Most companies, however, are adding more detail to their company car regulations than in the past.
What do you recommend?
Carsten Schlichting: The right choice depends on the company and its particular culture. In principle, however, we recommend that companies invest more time in revising their current regulations and clarifying the ground rules in advance, as much as possible. This almost always pays off in a very short time.
David Voggeser: Whatever is not set out in advance usually comes back to haunt the people responsible in the long run. That often means considerable extra work and different employees getting different treatment. That can quickly lead to unhappiness, which is the exact opposite of what companies are trying to achieve with company cars.
Carsten Schlichting: Which brings us to another important point: Whatever the technical rules and regulations, company cars remain a highly emotional issue – especially in Germany!