Fleet News

Company car: Is it still a tempting perk for execs?

THE pure 'perk' company car has been overtaken by pensions and share options as the favourite benefit of Britain's boardroom bosses, according to research by Fleet News.

The tax hit on company car drivers who cover fewer than 2,500 business miles a year has been an eye-watering 35% of their cars' list price since April 1994, a wallet-raiding level that has encouraged all but a hard core to switch to cash-for-car alternatives and other corporate benefits.

These opt-out perk drivers are the employees whom the Inland Revenue expects to move back into company cars under the new emissions-based system that offers no tax concession for business mileage, but offers maximum discounts to every driver who selects a car that beats the minimum threshold for carbon dioxide emissions.

The perk company driver of a Mercedes-Benz E 220 CDI, for example, will see his or her benefit charge fall from 35% of the car's list price to just 18% under the 2002/03 tax year rule. Likewise, the perk driver of an Audi A6 Avant 1.9 TDI will halve his or her tax liability from 35% to 18% of the car's price.

The Inland Revenue believes the new tax system is so favourable to perk drivers that it expects 400,000 employees to opt back into company cars, while 200,000 decide to hand in their keys, a net gain of 200,000.

However, research by Fleet News indicates that the company car has lost its primary status in flexible benefits packages for office-based employees, and especially senior executives at City-based firms, even if it remains an essential tool for employees who have to drive on business - witness the healthy and rising monthly fleet sales.

For decades, the company car has been a major tool in attracting the best people into jobs: a paid-for perk that bestows status and takes away hassle. But with the job market evolving into an ever more fierce and competitive environment, and executives less disposed towards loyalty to employers, offering workers the next model up, with a spoiler and bigger set of alloy wheels may no longer guarantee they sign up and stay. Nor will the promise of leather seats and satellite navigation necessarily be enough to prise corporate stars from other firms.

Research by Fleet News into nearly 600 advertised executive and sales jobs in the broadsheet newspapers found that fewer than a third now dangled the carrot of a company car in the advertising copy.

And these are heavyweight jobs, with an average advertisement costing about £9,000. For that price, a company is going to dangle every carrot it thinks it needs to attract the right person. It would be a costly mistake to omit anything that could dissuade a potential applicant from putting his or her CV in the post. The shift in recruitment and retention strategy among high earners is noticeable. In the penultimate week before the new company car tax system comes into force, the First Executive and Premier Executive job ads in The Times, and Appointments in The Daily Telegraph and The Financial Times carried 377 vacancies, but only 65 adverts specifically mentioned a company car, while 13 offered a cash allowance for a car.

Some of the other adverts may have included a car, given that a further 105 roles boasted 'benefits', although Calum Robson, content manager for HaysWorks.com, the website of worldwide recruitment giants Hays, commented: 'We always recommend to firms that they put '+ car + benefits' because a car is such a big benefit.'

The company car is still booming when it comes to the sales force though. Of 217 jobs on GrocerJobs.com, which consist mostly of sales and marketing roles, 114 offered a company car as part of the package. And the high profile advertising of London estate agency Foxtons has successfully grabbed the attention of young salespeople with the promise of a BMW Compact and, more recently, a MINI Cooper.

'For sales forces, a company car, and what they have is very important to them. It is a prestige thing as well and sends a message to clients,' added Robson. 'In the sales field, the car is much seen as a pre-requisite. In lots of other sectors, however, it is not as valuable or given the same weight as it was five years ago. Many people are taking cash allowances instead.

'Higher up, there's really an assumption from those that have reached a certain level they will have a car, and that in the overall package benefits such as share options will make much more of a difference.

'They are not people who need financially to worry about whether they have a car or not.'

Nicholas Bennett, head of the compensation and human resources practice at Buck Consultants, agreed.

'It is changing, but slowly. The car is now the number three benefit of all, behind pensions and private medical care. It can depend on the way the employees perceive the benefit though,' he said.

'I think the company car used to be number two, with pensions number one, but the market is changing for different levels of people.'

Many adverts now promise a complete benefits package, rather than the straightforward offer of a car, as employees seek greater flexibility over their taxable benefits.

'A lot of jobs are starting to quote total rewards or total remuneration, which includes the costs of a cash allowance in the package for a car,' said Bennett. He has seen the UK workforce evolve from the traditional 'nuclear' family where the father goes out to work and gets a car, to one where there are more independent young men and women looking for more wide-ranging value from their jobs.

Employees are consequently looking at extras such as the type of working environment, the opportunity to buy back holiday, join gyms, the overall social scene and being able to take time off when they need to. Flexibility and choice are the key words. Yet the fleet decision-maker can still have an important role to play in the new car choices being offered to staff.

Bennett believes companies need flexibility to recruit and retain staff, which includes offering a wider selection of cars on fleet choice lists that fit employees' business, family and leisure needs.

'Fleet managers can evolve their role to help employees choose the right kind of car, by going to ride and drive events like Fleet News Drive, because they will have to be well versed on different cars,' he said.

The concept of cafeteria-style benefits packages have been on the agenda for years now, and benefit flexibility is clearly the current buzzword.

Robson said: 'Menu benefits are becoming increasingly popular. They have about 20 options on them, and employees can pick, say, 15. People really want the family-friendly packages, which give things like flexi-time, childcare facilities and paternity leave.

'Most companies are focusing on 'work/life balance' deals, expecting a lot from their employees, but rewarding them in a way that benefits their life outside work.

'A company car is not as high up the list as it used to be, and probably because a lot of the time it is taken for granted. If companies do not offer a car and they need to get somebody in particular, then they will do it.

'I'd be very surprised if the number of company cars had gone down significantly. The car is important, but as part of the whole deal. It's not a clincher any more.'

Leave a comment for your chance to win £20 of John Lewis vouchers.

Every issue of Fleet News the editor picks his favourite comment from the past two weeks – get involved for your chance to appear in print and win!

Login to comment

Comments

No comments have been made yet.

Compare costs of your company cars

Looking to acquire new vehicles? Check how much they'll cost to run with our Car Running Cost calculator.

What is your BIK car tax liability?

The Fleet News car tax calculator lets you work out tax costs for both employer and employee