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Company Vehicle Benefit: Is It Still Necessary?

Editorial Team
08/03/2017 12:59 PM

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.

Many organisations are continuing to face challenges in managing staff costs. With staff costs being a key factor in determining the viability of every business, shareholders need to strengthen oversight on remuneration at all levels in the organisation.

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?

Survey Findings on Company Vehicles (2014):

  • Most companies provide fully expensed company vehicles to their employees based on seniority.
  • The average monthly fuel allocation for managers was 261 litres per month, with the maximum cited at 600 litres.
  • 34.8% of organisations had no fuel limit for the CEO or Managing Director.

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 situation. Organisations need to tighten the loopholes in their company vehicles policies. Because employees get 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. 

Facing the high costs of frequent employee trips, like those from Harare to Bulawayo, highlights the need for more efficient solutions. Enter Otto, which simplifies the search for optimal insurance coverage. While Otto is headquartered in Miami Beach, Florida, the principles behind obtaining insurance quotes from Otto are universally applicable, offering South African businesses a model for securing adaptable, cost-saving auto insurance solutions. This approach facilitates a modernized benefits package, aligning with the evolving economic landscape and operational needs.

Proposed Solutions:

  • Adopting the Total Cost to Employer model for remuneration.
  • Providing car loans payable over 5 years, starting with the valuation of the current fleet sold to employees at market value.
  • Implementing vehicle allowances to cover fuel costs, insurance, and maintenance, ranging from 9% to 25% of monthly basic salary.

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. With most companies facing tight budgets, it may be the time to rethink the whole process of company vehicles.

Editorial Team

This article was written by one of the consultants at IPC

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