Insight: Management – Considering all options.

Insight: Management - Considering all options.

Tax and lifestyle changes mean employee incentive packages are as likely to include share options as they are company cars

During the early part of the twentieth century cars were the ultimate luxury. Car advertisers will still have you think that when you buy their particular type of automobile you will be able to roam freely around country roads at 100mph without even catching a glimpse of another car.

Today’s traffic problems such as jams, pollution levels, road rage and parking tickets could never have been conceived in that era of carefree driving. Unfortunately nowadays they are very much a part of everyday life.

Nevertheless companies have for years attracted and retained many of their senior employees with the offer of a luxury company car as part of a benefits packages.

It has only been during the last few decades because of the growth in public and private car ownership and the pressure from environmental groups that the government has begun to question the value of owning a car. Recent tax and lifestyles changes are however set to turn the world of company benefits packages on their heads. And it will probably be employees that face the hardest changes in the form of the take-home pay.

In April 2002 the rule that the more business miles you do the less tax you pay will change. The focus has now tilted to the level of pollutants your car emits and the engine size irrespective of the number of miles you drive.

And it will be those deemed as perk car users that are set to gain more from the changes as they can opt for cars with small engines and thus lower emission levels.

Staff whose cars are integral to their jobs will be hit hardest.

In the run-up to the tax changes employees are having to think seriously about the necessity of a large comfortable emission-high car, while employers are mulling over alternative benefits packages to offer staff.

The government has however succeeded in its goal. A survey published earlier this year conducted by the Institute of Directors and mid-tier firm HLB Kidsons found that nearly half of respondents from small and medium-sized companies said the new company car tax regime has forced them to alter the composition and structure of their fleets. They have now taken into account emissions and engine size and nearly one in five expect to reduce the size of their fleets.

So far the favourite substitutes to offering a company car are cash alternatives or mileage allowance if employees use their own vehicle for business purposes.

Richard Baron, deputy head of the policy unit at the IoD says: ‘The survey has highlighted that the government’s policies seem to be working, especially amongst larger companies, with a swing away from company cars and changes in fleet compositions. The government’s aim was to discourage the use of perk and unnecessarily large cars, but it should take note of the fact that 70% of company cars are considered to be necessary for business use, and not just perks.’

Nearly 40% of the SMEs, with staff of 10 to 249 employees, say they will offer cash alternatives to cars. Thirty percent say they will revise the benefits basket they offer. A further 20% say they plan to remove cars and 15% say they would remove fuel from their employees’ benefits package.

And it is not just the company car that many employees are set to lose.

Accounting changes to pensions effective from 2003 will also hit staff.

More and more companies are switching from defined benefits schemes to defined contribution schemes where the risk is shifted to the employee.

Another popular employee benefit that might soon have to be rethought is that of offering staff shares and share options. This policy, although growing at a steady rate among traditional bricks and mortar companies in the UK for a number of years, exploded with the onset of dotcom mania back in 1999. The trend has grown exponentially over the last three years particularly among cash-strapped dotcom companies. In order to attract the cream of entrepreneur to dotcoms, owners dished out shares and share options like they were going out of fashion.

It became so commonplace that the offer of share options was extended to suppliers.

These transactions however were included in profit and loss accounts.

This has not gone unnoticed by the world’s accounting standard setters who argue that this is an expense and therefore should be booked in the profit and loss pages. It is a debate that continues to rage.

The tough-talking Sir David Tweedie, chairman of the International Accounting Standards Board and previously chairman of the UK’s Accounting Standards Board, is leading the share-based payment debate; much to the dislike of company directors.

Despite vociferous protests from FDs of companies such as GlaxoSmithKline and Logica, Sir David maintains they are an expense and should be shown as such.

If the standard-setters are successful, company profits will be sharply affected.

One in five large companies could see their profits plummet by more than 10% under the plans a survey by HSBC found this year. The survey of 65 major European companies found that a further two in five would have to add a charge of more than 5% to their profit and loss account. A spokesman for ICI, the pharmaceuticals giant, said that share-based payment remains one of the company’s main incentive plans. ‘It drives employees to improve the value of a company. We’re not intending to be at the forefront of offering creative benefits’ packages.’

However, ‘incentivising’ senior and middle managers was the intention of such packages. ‘The form in which that happens will vary over time and from company to company. It is dependent on tax and accounting changes,’ he adds. Whatever tax or accounting changes occur, when looking for a new job or seeking promotion within a company the whole package will always be a major consideration for employees.

But as professional and home life changes, employees are beginning to consider more than just the monetary terms of a job.

A new book ‘Britain’s Top Employers’ by the Corporate Research Foundation is a insightful snapshot of employees’ thought processes when considering employment and their prime reasons for staying with a particular company.

Although most of the companies listed in the book offer above average remuneration and generous benefits packages, two other criteria, training and development, and the working atmosphere and environment, are nowadays increasingly playing a major role in decision making.

You do after all spend most of your waking day at the office with colleagues or clients.

And as the book’s editor, Mike Hardwidge, puts it ‘a clear advance is that employers expect work to be something enjoyed rather than endured’.



How can you motivate your key people? Tried and tested methods are no longer viable – from share options (in a bear market?) to company cars (due to environmental concerns and new taxes), writes Helena Clayton.

But, companies that only look to financial incentives to motivate employees have been living on borrowed time anyway. Few people are solely motivated by money, and your competitors can always match or exceed what you are offering to poach them. Employers should move the focus of their motivation strategy away from pay and reward to the individual issues that are more important to employees – work/life balance, development opportunities, personal interests and so on.

Motivation is linked to strategies, policies and procedures in all areas of the company. Any motivation strategy needs to start with recruitment, for example. A simple illustration: If you make unrealistic promises when recruiting staff (‘you’ll be a partner within three years’), don’t be surprised if the employee loses motivation when this promise is not kept.

Equally, the culture of an organisation can be highly demotivating. Firms where staff are expected to stay late at night ‘until the boss leaves’, or those with an inflexible hierarchy or a blame culture will almost invariable suffer from lower motivation than those with open cultures.

Take the time to ask individuals what they want from their career and the organisation. Learn what motivates them and interests them. A number of employers are finding a separate career review meeting outside of the formal appraisal system gives strong insights in this area.

Taking time out to talk to people about these areas can have spin-off benefits. Individuals may feel more open talking about personal skills and interests that can benefit the company. Don’t just focus on pay. Use the results of your work above to be creative when developing your employees.

In short – looking at the big picture, and treating your employees as individuals can lead to a more motivated and more productive workforce.

– Helena Clayton is an associate consultant with Coutts Consulting, career and change management specialist.

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