The Car and Truck Fleet and Leasing Management Magazine

Executive Vehicles vs. Driver Reimbursement

January 2008, by Staff

Most of the fleet management world deals with utilitarian vehicles — they are provided to an employee for whom travel is part and parcel of job performance. Whether a salesman who travels to meet with customers and prospects, or a service technician making service or installation calls, company vehicles help make certain that customers are seen.

There is another class of company vehicle, of which the purpose, though no less important, is very different: executive vehicles. When a company recruits experienced, talented senior management, a company car can make the difference. However, rather than providing a vehicle, some companies prefer to reimburse the executive for the purchase or lease of a personal vehicle. Both methods have benefits; both have shortcomings.

Executive Vehicles Vary
Like executive positions, there can be more than one level of executive vehicle. Sales fleets often have field sales executives at the director or vice president level. (The same can also be true in a service fleet.) The job may entail some travel; however, the vehicle is essentially compensatory in nature.

At the corporate level, senior sales and service executive management vehicles are included as part of a compensation package. Finally, the most-senior corporate executives, the so-called “C” level (CFO, CEO, CIO, etc.) often receive a purely compensatory vehicle.

Under normal fleet circumstances, the company car versus reimbursement question is primarily a financial one. Based upon the cost of providing a vehicle, the company’s reimbursement policy, and the number of miles the employee will be driving, there is a break-even point at which it is less expensive to reimburse than to provide the car.

Other considerations, such as the nature of the job to be done, also come into the mix. For example, it is hardly reasonable to ask a service technician, who must carry tools, equipment, parts, etc., to provide his or her own vehicle.

Executive vehicles, at the various levels mentioned, are generally not subject to the same criteria. Cost is not as much a factor, and the vehicle versus reimbursement question is more an HR consideration than a financial one: Which provides the company with a competitive advantage when recruiting executive talent?

Using Company Cars
At the most-senior levels, vehicles provided are usually high-end, luxury models, both foreign and domestic. Though, for the most part, all executive vehicles should be subject to normal fleet policy, some exceptions are often made. For example, when personal use is limited or prohibited altogether, clearly, executive vehicles are exempted. It would be ridiculous to provide a vehicle as compensation, and then prevent the executive from driving it.

For C-level executives, several selection policies are commonly used:

  • Vehicle selection. In the same manner that regular fleet drivers are given a selection of vehicles, so, too, are executives.
  • Vehicle value. For example, the company sets a dollar value of $60,000, within which the executive may select any vehicle he or she likes. The company then provides the vehicle via its normal fleet program.
  • Lease value. The company, in this case, establishes a monthly amount, i.e., $1,000, and again the executive designates the vehicle of his/ her choice, which is leased through the company’s fleet lessor.

At this most-senior level, the compensatory nature of the vehicle tends to move most companies toward one of the latter two methods, where the company provides the financial aspects of the vehicle, but the executive chooses the vehicle.

The company must deal with another issue if it provides the vehicle: accounting for personal use. The personal use charge, under regular fleet policy, may not be enough to cover the value of a high-end luxury car, so the fleet manager may have to calculate the value separately, or, since there is likely little business use, simply add the full value to the executive’s income. If that is done, some companies “gross up” the W-2 to cover any taxes owed by the individual. The bottom line in providing executive vehicles is that it is compensation, a perk, and should be treated as such, with as few limitations and financial impact as possible.

Staff below the C level, often those at a vice president or director level who are also senior executives, may be subject to more restrictions in their executive vehicle program.

It is more common to have some kind of vehicle selection at this level (we’ll call it the VP level), rather than simply putting dollar limits on the vehicle driven. VP-level vehicles would be a natural progression in the discipline that reports to the VP. For example, if the sales fleet is provided a choice of mid-sized four-door sedans, and field sales management is offered full-size four-door sedans, the VP of sales might be provided a luxury car or perhaps a specialty vehicle such as an SUV.

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