Are you in the driver’s seat of your company’s car policy?

Inflation became an urgent consideration for companies around the world. More than ever, HR professionals have been tasked with implementing a variety of actions to support employees, manage costs and optimize talent attraction and retention. Naturally, there has been a focus on compensation policies and identifying ways to adapt salary and other cash compensation elements. However, employee benefits also are under scrutiny – including company car policies.

Whether your organization hands employees the keys to company cars or provides a cash allowance, the complexity of company car programs has increased, and new questions are being asked about how this benefit is managed.

For example, with few exceptions, the price of cars has increased considerably around the world in a very short time. Also, fluctuating currency rates have affected car prices, particularly in countries where cars or component parts tend to be imported. This means a particular car make or model that was affordable just a few months ago may no longer be within budget. Moreover, many organizations are turning to electric or hybrid vehicles, and those frequently come with a higher price tag.

At the same time, organizations are keen to control costs – after all, reducing cost is a frequently reported objective among organizations that are reviewing their car policies. Also, governments are trying to encourage companies to reduce their carbon footprints by making vehicles that produce more pollution less attractive via regulatory changes and promotion of alternative commuting options. These factors make it challenging for fleet and policy managers to control costs and identify the best solutions for different market conditions. Making the right decision requires a thorough analysis of external and internal factors.

Though the time between analysis and policy changes may lag from company to company versus the speed at which external conditions are changing, there are several factors that every organization should consider when attempting to manage costs. The most common? Benefit value, tax optimization and plan eligibility.

Benefit value

WTW’s 2023 Company Car Benefits Survey Reports revealed multiple insights about the budget that companies dedicate to company cars as well as which market shifts have emerged in the past year. For example, among companies that use car purchase value as the basis for their per-employee budgets, we see that the median market value increased in 2023 by an average 7% in Poland and Mexico across employee categories.

However, within a country the movement may differ depending on the employee category. As an example, the median budget increased by as much as 12% for business unit heads/country managers in the U.K., and in the Philippines the median budget increased by 10% for non-sales middle managers/senior professionals.

In most countries, company cars are provided under leasing contracts and companies tend to use the monthly leasing value as a reference when setting budgets. We see a good proportion of countries in which budgets are increased, even if not to the same extent as inflation.

Looking at a selection of countries and the average change across employee categories, we see a 5% median increase of the leasing budgets in Poland and a 3% median increase in the U.K. and Mexico. However, Denmark, Ireland, the Netherlands and Spain reflect more conservative numbers, and France and Italy are seeing decreases when compared to 2022 data.

Again, significant differences can be observed depending on employee category. For example, in Spain and the U.K., non-sales professionals’ median leasing budget increased by a whopping 10%, and sales managers in Poland saw an increase of 14%. Executives in Denmark and Portugal saw median increases of 8% and 6%, respectively.

Some distinctions support the idea that organizations update their budgets on different timetables. Consider the Belgian market: The higher leasing budget percentiles increased more (6% to 7%) year-on-year, compared to the lower percentiles and median (2% to 4%), suggesting that high-end values are increasing at a faster pace.

Then, of course, are the countries where car allowances are more common than company cars. Rather than providing a vehicle, employees are provided with cash to finance their personally owned car. In the U.K., when comparing car allowances against car budgets, car allowances have increased less. This may be a result of car allowances typically being set based on available allowance market data, and not in direct relation to car prices which may cause a lag. In the United Arab Emirates, another country where a car allowance is typical, the average change across employee categories shows a median allowance increased by 2%, with the highest median movement being among executives (12%).

Tax optimization

Another way to manage the cost of this benefit is by carefully analyzing the impact of tax regulations on the provision. Today, many regulations associated with company car benefits are trying to increase organization and employee interest in environmentally friendly vehicles.

Among companies in Europe that plan to review their car policy in the next 12 months, most are focused on implementing more environmentally friendly policies and behaviors, according to the 2023 company car benefits data. In addition to the positive aspects linked to reducing the organization’s carbon footprint, tax efficiencies that help reduce costs also make this type of move appealing for employers and employees.

This shift to greener alternatives is beginning to appear in other regions as well. In Brazil, for example, 10.8% of companies considered the implementation of more environmentally friendly policies in 2022, but that number jumped to 23.2% in 2023 (Figure 1).

This shift can also be seen when exploring the car models that participants reported in the survey. The fully electric Tesla Model 3 is the second-most common model for executives in the U.K., just after the BMW 5 Series. In the Netherlands, the Tesla Model S is the third-most common car for executives, and the Audi E-tron is among the top 3 most frequent makes and models for both business unit heads and sales managers in Norway.

The move toward more environmentally friendly policies and behaviors also is inspiring organizations to consider alternatives to the traditional company car and car allowances. Alternative commuting solutions are a hot topic as organizations implement new working patterns and increase remote work. Alternatives that organizations are beginning to propose include:

• Company-provided bicycles (Figure 2)
• Bicycle allowances
• Subsidized public transportation
• Organization of carpooling among employees
• Budget dollars that can be used across a variety of commuting options

Eligibility

Finally, controlling eligibility is an important way to control costs. Determining the appropriate eligibility criteria is not always easy, as internal factors (e.g., actual need) must be balanced against external factors (e.g., talent attraction and retention impact). Among companies that plan to review their car policy in the next 12 months, some are considering removing eligibility or select roles or employee categories, but the numbers overall remain relatively low in most cases (Figure 3).

What HR should consider

Company car policies are not necessarily reviewed on an annual basis. But that may be worth reconsidering – particularly if you are managing plans across multiple countries and regions.

Holding onto old policies can impact your costs and talent retention efforts. Increased leasing fees and car purchase prices will directly impact your organization’s costs as soon as vehicles are up for replacement, especially if employees are bound to select from a set list of makes and models. If employees can choose vehicles based on a budget (e.g., maximum leasing fee), the financial impact is easier to control, but you risk employees being disappointed as they may no longer be able to select the type of car they are used to having.

Market best practices

Among companies that plan to review their policy in the next 12 months, their primary objective in most cases is to align with current market best practices. This makes understanding current local practices and having access to robust, up-to-date market data crucial.

Legislation and regulations

It is important to keep up with the effects of current and future tax legislation and regulations and their impact on your plan design. Alternative mobility options such as bicycles or public transportation as well as more environmentally friendly cars are tax effective in some countries. Additionally, driving cars that contribute to pollution in certain cities and countries may be or may become prohibited.

However, remember that offering electric vehicles requires your organization to consider additional policies that manage the charging of such vehicles. Ideally, these policies should account for the status of charging infrastructure within employees’ geographies.

Employee preferences

WTW’s Global Dynamics of Work study found that 15% of organizations have redesigned their total rewards to better align with changing employee preferences, and an even larger proportion are taking action or plan to act – which means we can expect more changes to practices over time.

A company car benefit cannot be compared to any other benefit because of its visibility and direct impact on the daily employee experience, so it is safe to presume that changes (or the absence of changes) will be noticed. Additionally, understanding your employees’ mobility habits and what makes sense for them from a practical standpoint is crucial when proposing alternative mobility options.

Align your strategies

Finally, ensure the changes you make are aligned with the organization’s overall compensation strategy, environmental, social and governance frameworks, and affordability and business requirements. For example, you may have to think differently about cars or allowances that are provided as a perquisite or based on employees’ job requirements. Moreover, understanding your organization’s capacity to support the changes is important. After all, introducing alternative mobility solutions could increase administrative tasks, and an electric fleet may require adaptations of owned facilities to support charging.

As the world continues to shift its focus on what’s most important, organizations are finding themselves in a position that requires thoughtful reflection. The way companies approach programs that directly effect employees and the environment will ultimately effect business reputation among communities and talent. That makes the way you approach your policies and programs critically important. And the best, most defensible approach is always based on sound data and intelligence.