The Car and Truck Fleet and Leasing Management Magazine

How to Structure an Effective Executive Program to Achieve the Proper Balance

January 2004, by Bob Cavalli

Dissecting an Executive Fleet Program to Achieve the Proper Balance

An Important Benefit
It is difficult enough to even find top-notch management talent, let alone compete successfully for them. And once an executive is hired, most companies understand that retention is often an ongoing battle. Executive compensation packages include myriad non-cash benefits, beyond salaries, bonuses, stock options, etc. These include club memberships, financial planning, legal advice, use of corporate aircraft and, of course, company vehicles. One of the primary reasons that a company car is so valuable is that the company is able to provide it (as well as the attendant costs) at a cost much lower than the executive, and these costs are relatively simple to quantify. Fleet management organizations such as the National Association of Fleet Administrators (NAFA) have for years “run the numbers” on company- versus employee-provided vehicles, and the results are unambiguous; a company car is worth far more to the individual than its actual cost to the company. Here are some of the major components of such an analysis:

 1.Determine what level of compensation you are willing to provide: HR departments usually have a finite range of compensation in mind when recruiting executives, which includes cash and non-cash payment. Clarify how much of each will be offered.
 2.Determine the total costs of vehicles that fall within the compensation range: Make certain that all costs are included. For leased fleets, include total lease payments (including projected TRAC adjustments), insurance, variable costs (fuel, maintenance, etc.) and miscellaneous costs such as title and registration.
  3.Draw a comparison between the cost of the company-provided vehicle and what it would cost the executive to provide it: This will be a useful comparison in the recruiting process. The compensation package is described in overall terms, using the cost of providing the vehicle personally, i.e., the value rather than the true cost.

Many Options Available

A number of other options are available to companies that wish to include a company vehicle in executive compensation packages. One method is to establish a cost ceiling, within which the executive can choose any preferred vehicle. In this case, of course, the ceiling should fall within the compensation range the company has established, and the actual cost of providing the vehicle is used.

Allocating executive-selected vehicles can be a problem if the executive portion of the fleet is substantial. For regular fleets, many companies have negotiated agreements with a single manufacturer that include incentives for a minimum number of orders during a model-year. Providing a dollar limit rather than a selection of specific vehicles can reduce the number of orders placed, possibly jeopardizing the incentives. Make certain that you cover this issue with your senior management.

The alternative, of course, is providing a selection of vehicles from which the executive can choose. Selectors for non-executive fleets are generally based first upon utility (which vehicles can do the job), then by cost. Obviously, executive selectors are simply based upon the compensatory value of the vehicle and possibly upon manufacturers’ incentives as discussed above. Often, there can be several levels of executive vehicles (in the same manner as there are levels of regular fleet vehicles); these levels are generally broken down by job title. For example, a director, a vice president, and a senior vice president would be eligible for different level vehicles.

Another option is to provide a monthly payment, or allowance, and permit the executive to obtain a desired vehicle. While this practice isn’t technically providing a company vehicle, it offers the same kind of free choice as does the dollar limit, as well as the same drawback of cutting into orders required by a manufacturer’s incentive agreement.

Whatever the method used to determine what vehicles will be offered, the most important factors in managing executive vehicles are convenience, time, and service.

Time Is Money
Certainly, minimizing downtime is a critical issue for all fleet vehicles; customers await, product must be delivered, meetings attended. But the cold fact is that the more an employee is paid, the more expensive that employee’s time becomes to the company. Executives carry enormous responsibility, and time is their most precious commodity. Thus, even if the vehicle provided is purely compensatory in nature, it is important that fleet managers make certain that the various day-to-day events that come with the vehicle operation are handled quickly, without inconvenience and, wherever possible, in a manner transparent to the driver.

Your company’s most senior executives (and thus those with the largest and most important responsibilities) are likely located in corporate headquarters. Having local relationships is a tremendous advantage in providing service.

 •Dealerships: For at least the term of the new-vehicle warranty, the best facility for the provision of preventive maintenance is the dealer through whom the vehicle was purchased or delivered. Local dealers are often willing to negotiate pick-up/drop-off service for simple maintenance and repairs. The vehicle is picked up at the office, taken to the dealer for service, and returned at the end of the day. In instances where either the vehicle will be in the shop overnight, or where the executive requires transportation during the day, dealerships often will also offer the use of a courtesy car or demo.

 •Glass Replacement: Again, a local glass shop (which can usually be contacted via your company’s fleet management vendor) can provide on-site glass repair and replacement.

 •Local Independent Repair Facilities: Once the warranty has expired, or for items such as tires, a local tire dealer or other independent repair facility should be used; the same pick-up/drop-off service, and sometimes a courtesy car, can be negotiated.

 •Fuel: Depending upon how many locally garaged vehicles your company has (and including both executive and regular fleet vehicles), local fuel stations may be willing to negotiate discounts on gross purchases in return for exclusivity or certain levels of volume. Local relationships such as these will help create a level of transparency in executive vehicle management; that is, these activities occur behind the scenes, without driver participation.

Field Executives

In some cases, companies have personnel in the field who qualify for executive vehicles, such as sales directors and vice presidents. Their use of the vehicles usually tend to the more utilitarian; they often travel more on business, carry passengers, etc.

Local relationships are not always possible to negotiate for these drivers, who work out of field offices, or even their homes. Using the normal fleet management programs is not really a problem in this case, except for providing courtesy vehicles. Field executives will often have service done (much in the way regular fleet drivers do) “on the fly” while traveling. At minimum, talk with the local delivering/selling dealer, so that servicing is performed at least while the vehicle is under warranty, with similar guidelines as the headquarters’ local dealers.

Fleet Policy for Executives
A number of policy items for executives may differ from those in force for the majority of the fleet. When vehicles are originally provided, it is important to make certain that the executive knows and understands these policies and, if possible, signs off on them.

Fleet policy documents cover subjects such as vehicle assignment/qualification, personal use, vehicle selection, and motor vehicle reports. The two primary areas in which executive vehicle policy may differ from that of the fleet in general are personal use and vehicle replacement. Most companies permit drivers to use company vehicles for personal use, and charge for that use in a number of different ways. Some place limits either on the scope of use (for example, limiting it to weekends, prohibiting vacation use, and restricting use out of the country).

For headquarters executive vehicles, provided entirely for compensation, all or most of the use will be personal, thus impossible to restrict. Another consideration is defining who will be permitted to use the car. Some companies allow only the employee to drive it; some permit spouses; still others authorize use by any licensed driver (often with an age limit, such as 21). If the executive is permitted full and unfettered personal use, extended to others in the immediate family, make certain that motor vehicle reports (MVR) are obtained and updated at least once per year (particularly if there is no age limit on family use). Field executives can usually be covered by the same personal use policy, as is the balance of the regular fleet.

Accounting for the value of personal use is another matter. A number of methods can be used; the two most common are:

Flat Personal Use Charge: A flat monthly dollar charge, either against the paycheck or deducted from expenses submitted. The executive personally accounts for business use and deals with personal tax issues.

 •IRS or other mileage charge: Using the IRS “safe harbor” or other cost per mile charge will, of course, require that regular mileage be reported. Because most executive vehicle use is personal, some companies have a policy of “grossing up” executive pay to compensate for this charge. This policy allows the full value of the compensation package originally offered to be realized.

Your fleet manager most often will find that, except for the most senior executives (company president, CEO, CFO, etc.), executive vehicle drivers will not expect any sort of special treatment. They are usually willing to follow normal fleet procedures, a welcome relief to most fleet managers, since few staff are usually available for “kid glove” service. But it is a good idea for the fleet manager to stay informed of issues beyond the normal day-to-day operation of executive vehicles — problems, breakdowns, and other inconveniences.

For the company’s most senior management, it will behoove the fleet manager as well as his or her immediate supervisor to handle situations personally, from start to finish. Make certain that these executives know to contact the fleet manager directly whenever they require vehicle servicing or encounter problems such as breakdowns or accidents. In such instances, keep careful records of contact dates and times, any communications with repair facilities, and keep the executive informed of progress. When servicing is completed, a follow-up call, e-mail, or note should complete the file. You will generally find that even the company president or CEO won’t expect or demand such “high touch” service, and will appreciate the effort.

Although this direct involvement isn’t always necessary when dealing with field drivers, it’s still a good idea to stay informed of servicing activity.

As a side note, involving executives in fleet matters can be a boon for fleet managers when they implement policy, or require approval for resources. If a key executive is dealt with properly, that executive will be more likely to provide direct support, for example, in establishing a safety program or installing a fleet management system.

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Remaining active in the fleet industry for more than 50 years, Ed Bobit is chairman and founder of Bobit Business Media (BBM), Automotive Fleet editor, and a founding AFLA member.

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