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.
Two policies can come under the overall heading of “reimbursement.”
1. The executive might be offered a flat monthly stipend, with which to purchase, finance, or lease the vehicle of choice. The company might offer assistance in negotiating price or lease terms; however, the vehicle and related expenses are the executive’s responsibility.
2. One alternative, as previously described, is to establish a flat dollar limit for a vehicle purchase (or if leased, a monthly lease cost). The executive then chooses a vehicle and the company provides it. Any excess in cost for the vehicle chosen over the policy limit is borne by the executive. Operating expenses such as fuel and maintenance are provided by the company, and a policy is set to account for the compensatory value.
The primary benefit to the executive in the first scenario is total flexibility and freedom of choice. Additionally, the vehicle remains with the executive should his or her employment end (the reimbursement, of course, would stop). The downside is similar. The executive ends up with a vehicle not actually needed and then must bear the cost in the event he or she leaves the company.
The dollar/lease cost policy is generally more advantageous to both the company and the executive. There is a similar level of flexibility (the executive chooses the vehicle, provided he or she is willing to make up the difference in any excess cost), and the company maintains a level of control on the overall cost and administration of the car. The only issue, a relatively minor one since such vehicles are few in number, is that the company must dispose of the vehicle if the executive chooses not to buy it.
When providing a senior executive either a selected vehicle or one within the dollar-limit policy, that executive should clearly understand he or she is subject to overall corporate fleet policy. With that buy-in, the fleet manager has serious clout when policy is amended or new programs are offered. For example, if the fleet manager proposes a fleet safety training program and the CEO is driving a company car, the CEO’s endorsement of the policy goes a long way not only toward implementing the program, but also in its application in every circumstance.
Caring for Executive Vehicles
Clearly, no employee’s time in the company is more valuable than the CEO’s or any other executive at the C level. For that reason, the tasks in keeping the vehicle maintained and repaired differ somewhat from that of the fleet in general.
Whether the vehicle is provided by the company or subject to a reimbursement scenario, the fleet manager is wise to arrange for the “care and feeding” of the executive vehicle at the local level. Setting up an agreement with a local dealership for preventive maintenance and repairs is a smart move. Arrangements can be made for the dealership to pick up the vehicle when maintenance is scheduled, and a service loaner can be provided for the executive’s use while the vehicle is in the shop.
While this practice might seem to conflict with normal fleet policy (drivers are usually responsible for getting maintenance and repairs done), it is naïve to think these types of special arrangements for executive vehicles aren’t a good idea. Senior executives’ time is valuable to the company, and ultimately these special arrangements save money. As important, however, is the opportunity for a fleet manager to develop a relationship with senior managers, which comes in handy when new policy or programs need senior executive support.
Although under the reimbursement options in which the executive receives a stipend and owns or leases the vehicle directly, the company does not pay for the maintenance, it is still a good idea to arrange locally for a dealership to provide high-touch service.
Which Works Best?
The question now remains: Is it better to provide executive vehicles or to reimburse? Naturally, there is no single correct answer, as all companies are different.
At the most-senior level, the C level, vehicles are generally purely compensatory. For that reason, it doesn’t make much sense to have a standard fleet selector. This leaves the two reimbursement options: setting dollar limits on a company-provided vehicle or providing a flat stipend with which the executive purchases or leases a vehicle directly. Of the two, the former has some advantages:
- The fleet has greater control over how the vehicle is maintained and can provide the kind of personalized service the most-senior executive needs.
- Executives won’t need to worry about mundane vehicle matters, such as registration renewal, insurance coverage, and the aforementioned maintenance and repair services.
The advantages are no different than those any fleet driver has when the company provides the vehicle. Reimbursing a driver for the use of a personal vehicle leaves the insuring, registration, and maintenance/repair to the driver, all of which can be time consuming. It is important to keep in mind that providing vehicles to senior executives is as much an HR and recruiting tool as anything else. The more restrictions placed on the deal, the less competitive the company might be in recruiting top executive talent.
Originally posted on Fleet Financials