Cost-conscious multinationals are reviewing their company car benefit policies
David Woods, July 23, 2010
Multinational employers have been forced to cut back on their company car perks to contain costs.
While employers recognise car benefits are an important component of employee pay packages and a powerful tool for attraction and retention, they are reviewing their car benefit policies to contain costs during this time of slow growth.
According to a study by Mercer, factors such as prevalence of company cars, purchase price, annual allowance paid in lieu of a car or to subsidise care-related expenses, eligibility and frequency of additional benefits such as fuel, maintenance and insurance are benefits that vary from country to country.
Mercer’s International Car Policies report summarises regional car policies and practice information that helps multinational organisations assess patterns and differences among countries. In addition to prevalence of company car policies, eligibility by level of employee and car value by purchase price, it covers prevalence of supplemental benefits, allocation policies, cash alternatives to cars and associated tax regulations in 76 countries.
In general, car benefits are most prevalent in the Americas and least in Asia Pacific. They are also prevalent in Europe, the Middle East and Africa, but eligibility for the benefit differs by employee level.
In addition to the prevalence of car benefits, purchase price of company cars differs by region. The median purchase price for heads of organisations and executive-level employees is the lowest in the Americas. The Middle East and Africa rank the lowest for management, sales professional and non-sales professional employees. The highest car purchase prices for all career levels are in Europe.
David Wreford, principal in Mercer’s Human Capital business, said: "Providing company cars for business use and as part of the benefit package for key employees has been a perk among executives for a long time. The need for employee mobility, the globalisation of benefit plans, competitive pressures, business control and relative tax advantages have added to the popularity of this benefit.
"However, as a result of the economic downturn, multinational organisations have been reassessing their car policies along with other benefits as they continue to struggle to manage costs."
Car benefits are prevalent in most countries in Europe, Africa and the Middle East. Among the countries that provide cars, Slovenia has the highest rate at 100%, followed closely by Belgium and Hungary at 99%, respectively. Other countries where car benefits are popular include France, Greece, Czech Republic, Finland, Germany and Poland. Whether company cars are available for business and personal use varies by job level. Cars are available for the use of both for the heads of organisations and senior managers, but as the job level decreases, cars are restricted to business use, especially at the sales force level.
The purchase price of cars in Europe, Africa and the Middle East are similar to that of the Americas and Asia Pacific in that they vary according to employee level. Heads of organisations in Denmark and Russia receive the highest car purchase price at $114,363 US and $92,265, respectively, while Bulgaria and Romania receive the lowest amounts at $45,423 US and $49,795 US, respectively. In contrast, executives in Romania receive $33,508 US toward a car while executives in Denmark receive $94,473 US.
Car allowances are common in Europe, Africa and the Middle East and vary by employee level as in other countries. For heads of organisations, Germany provides the highest allowance at $58,386 US, followed by Romania at $44,262 US. Sweden and the Ukraine provide the lowest at $8,628 US and $2,874 US, respectively. In Greece, executives receive an allowance of $31,983 US compared with heads of organisations who receive a slightly lower allowance at $30,207 US.
Employers in Europe, Africa and the Middle East voluntarily pay for tax, maintenance and insurance expenses for company cars except in a few countries where the company bases the coverage on position levels and may not cover any of these expenses completely.
In the Americas, more than half of companies provide car benefits to their employees across all countries except Honduras and Paraguay. Additionally, most companies cover fuel for both business and personal use. Notably, the prevalence of car benefits in the region varies from 37% in Honduras to 81% in Brazil. Car benefits are also popular in Mexico and Argentina (74%, respectively) while in the US, car benefits are prevalent for heads of organisations (71%). In Canada, 70% of organisations provide company cars most often to the heads of the organisation and executives, as status and seniority are the key factors in providing cars.
The typical purchase price of cars provided to employees in the Americas varies by employee level. For example, in Brazil, heads of organisations receive a company car worth $102,890 US compared with heads of organisations in Honduras who receive $33,549 US towards a car. In Venezuela, executives receive $74,699 US versus executives in Mexico who get $26,993 US.
Additionally, many countries in the Americas do not provide an annual car allowance (the cash amount paid in lieu of a car or to subsidise car-related expenses). Among the countries that do provide a car allowance are Brazil, Canada, Chile, Mexico and the US. For heads of organisations, the car allowance is the highest in Brazil at $35,000 US. In Canada, Chile, Mexico and the US, the car allowance for heads of organisations is $13,087, $13,097, $6,693 and $14,400 US, respectively. Moreover, most organisations cover maintenance, tax and insurance costs for company cars.
Among the countries that provide car benefits in Asia Pacific, Pakistan has the highest prevalence at 90% followed by South Korea (81%), New Zealand (77%) and Thailand (72%). Most company cars in Asia Pacific are used for business and personal use. Status and seniority remain the top criteria for determining whether executives and managers get company cars, while business need is the main criteria for lower level positions.
Similar to the Americas, the purchase price of cars provided to employees in Asia Pacific varies by employee level. For example, in Singapore the purchase price of cars for heads of organisations is $107,583 US compared to heads of organisations in South Korea who receive $24,448 US. Interestingly though, in Singapore and South Korea executives receive the same amount towards a car as heads of organisations, at $107,583 US and $24,448 US respectively.
Car allowances are typical throughout Asia Pacific, but are not as common for heads of organisations as they are in other regions. In Malaysia, more companies provide car allowances in lieu of the car and in Australia more than half (55%) of companies provide the option of cash instead of a car. Executives in Singapore receive the highest car allowance at $21,445 US. By contrast, executives receiving the lowest allowance for cars are in South Korea and Bangladesh at $4,896 US and $4,510 US, respectively.
Typically, company cars are provided to heads of organisations, executives, managers and professional sales employees throughout Asia Pacific. In general employers cover fuel costs for executives and most managers for both business and personal use, while they cover only business-related fuel costs for professionals. Additionally, in some countries employers cover additional car-related benefits. In Hong Kong, for example, employers generally cover all maintenance, insurance and tax related expenses while in the Philippines, the majority of companies cover maintenance, insurance and fuel.