1006 HR Magazine: Going Green

By Kathryn Tyler Oct 1, 2006

HR Magazine, October 2006

An incentive program for fuel-efficient cars can aid recruitment and retention if it fits your company's culture.​

Susan Dewhirst waited with anticipation for weeks for her blue 2006 Toyota Prius, giving up the 13-year-old car she'd been driving. She bought the new car with help from her employer, Tom's of Maine, which makes toothpaste and other personal care products without artificial or animal ingredients. Tom's of Maine, based in Kennebunk, offers its 163 employees $4,000 toward the purchase of a hybrid vehicle such as a Prius.

"The benefit definitely helped me get a new car," says Dewhirst, the media and public relations leader.

Amid concerns over global warming, skyrocketing gasoline prices, increased commuting distances and air pollution, some companies are offering incentives to encourage employees to buy vehicles that emit less carbon dioxide, one of the "greenhouse gases" linked to climate change.

Most hybrid vehicles use gasoline to power an internal-combustion engine and batteries to power electric motors, and they typically get 30 to 60 miles per gallon of gasoline.

Hybrids are beneficial for the environment in two ways: They use less gasoline, and they reduce fuel emissions because they often run on stored electricity. But such vehicles, which represent only 1 percent of total U.S. auto sales so far, are more expensive than the average gasoline carabout $3,000 more. Even with significant fuel-cost savings and high resale value, purchasers may not recoup the extra cost of buying a hybrid.

But some employers, such as those that make environmental responsibility a priority or whose workers may have to cope with dense traffic, are stepping in to help employees buy or lease fuel-efficient hybrids. Incentives are aimed at helping employees narrow the gap between the purchase or lease price of a hybrid and the lower cost of a conventionally powered vehicle. In return, providing such incentivesnot only for hybrids but also for other types of vehicles with high fuel efficiencycan help attract and retain environmentally conscious employees and secure a reputation among consumers as a "green" company.

Pluses for Employers

"The return on this is not financial," explains Stephanie Lowe, HR manager for Seventh Generation, a Burlington, Vt., manufacturer of environmentally safe cleaning products, with 50 employees. "It is about knowing that our employees are contributing to the health and vitality of the environment. Seventh Generation is focused on being responsible citizens of the world. Even if [employees] don't buy a hybrid, we get the community talking about it and researching different options."

In addition to offering recruitment advantages, incentives for purchasing fuel-efficient vehicles may also improve retention; many employers' policies on incentives require recipients to be employed for at least one year to participate, and some are structured as five-year forgivable loans.

But retention isn't the main motivator. "We don't have a lot of retention issues," Lowe says. "We offer a host of life-friendly benefits, and this is one piece of that. It aligns with [the values of] the people who are interested in working for a company [with] this type of benefit."

Dewhirst at Tom's of Maine agrees: "Environmental responsibility is one of our company's statements of belief. It's a big piece of who we are and what we do. The managers of the company believe that creating a demand for these types of cars is simultaneously doing good for the environment and employees. It adds to the social capital and high morale we have in our office." Moreover, she says, environmental responsibility "mirrors the values of our customers."

At Hyperion Solutions Corp., a business performance management company in Santa Clara, Calif., the idea for its incentive program came from the topCEO Godfrey Sullivan. "Godfrey is an equestrian and participates in endurance rides," says HR Director Tim Bonnet. "The idea for the Drive Clean [incentive program] sprang from a 100-mile horse race through the California Sierras. Struck by the awesome yet fragile beauty of the mountains, Godfrey asked himself what we could do to help employees help the environment.

"Hyperion's employees care about global warming and the impact of their commutes, and we wanted to do something innovative to help them."

Hyperion has discovered that its incentive program for fuel-efficient vehicles "is a great incentive for retaining employees, especially new ones," Bonnet says, "since individuals must be an employee for at least a year to be eligible. The Drive Clean incentive is paid out to employees as a bonus, and while they could take the bonus and leave, or sell the vehicle, abuse of the program has not been an issue."

HR Goes Car Shopping

Before implementing a fuel-efficientvehicle incentive program for employees, HR professionals need to determine which vehicles are eligible. Vehicleincentive benefits typically require either that the vehicle have hybrid technology or that it achieve a certain level of fuel economy. Some companies stipulate that the vehicle must be a hybrid, regardless of its gas mileage. For us, "it's about supporting the [hybrid] technology, not just better gas mileage," says Seventh Generation's Lowe. "It's about offsetting the price premium on the technology."

Other organizations require the vehicle to have a certain mileage rating to be eligible for the incentive. Therese Langer, transportation program director at the American Council for an Energy-

Efficient Economy, a nonprofit organization in Washington, D.C., advocates using the mileage requirement. "Hybrids vary quite a bit in how much they contribute to reducing oil consumption and emissions of global-warming gases," she says. "Companies should consider adopting a performance measure'must achieve at least X miles per gallon'for vehicles to qualify for the incentive."

For example, Hyperion's $5,000 incentive is given to employees who purchase a vehicle with a minimum Environmental Protection Agency rating of 45 miles per gallon. This includes hybrid vehicles, but it also can include high-mileage vehicles that use diesel fuel, ethanol or strictly gasoline. The wide range of vehicle options may explain why Hyperion's employee participation in the program has been high; out of 2,500 eligible employees in the United States and Europe, 125 employees have taken advantage of the program.

This type of stipulation also works for companies that, like Hyperion, have employees in other countries where hybrid vehicles are less prevalent but other fuel-efficient technologies are more common. In Brazil, for example, ethanol-powered vehicles are quite common. Hyperion's program is open to its 1,000 employees in other countries, Bonnet notes.

The Internet search engine company Google Inc., headquartered in Mountain View, Calif., also stipulates its incentive based on fuel economy. Spokesperson Sunny Gettinger says: "All full-time employees are eligible for the Fuel Efficient Vehicles Program, which offers $5,000 toward the purchase or $2,500 toward the lease of a qualifying new vehicle. To meet the requirements of this benefit, [Google employees] must own the car for three months and the vehicle must get 45 miles per gallon both on the highway and in the city."

So far, 200 of Google's 7,942 employees have participated in the program started last year.

Financial Logistics

In addition to determining which vehicles are eligible, HR will need to address financial and other types of questions, such as: Which employees will be eligible? Will the payment be up front or reimbursed? Will it be a bonus or a forgivable loan?

Eligibility. Experts recommend a year on the payroll as a requirement for participationto prevent abuse and encourage retention. "Anyone who has worked at Hyperion for at least a year is eligible, and veterans can reapply [for the incentive] every four years," Bonnet says.

HR professionals may also want to require employees to keep the vehicle for a certain amount of time. For instance, Timberland, a footwear and apparel manufacturer in Stratham, N.H., with 5,600 employees worldwide, requires employees to submit the vehicle identification number so that the company can verify that the employee still has the vehicle a year after the purchase or lease date. Timberland, which began its program in December 2004, offers $3,000 toward the purchase of a hybrid vehicle to employees with two years of continuous service, says Betsy Blaisdell, manager of environmental stewardship.

Payment timing. Should you pay the incentive before or after the vehicle is purchased? It depends. Paying an employee the incentive prior to purchase allows the employee to use the cash as part of a down payment. For instance, Seventh Generation and Tom's of Maine dispense the cash after receiving proof of intent to purchase. Most employees appreciate the convenience of receiving a ready-made down payment.

However, dispensing the money after the sale can guard against policy abuse and potential confusion. For example, what if an employee changes his mind about the car prior to delivery? It can take weeks or months for a hybrid car to be delivered to the consumer.

At Hyperion, Bonnet says, "employees complete an intent-to-purchase form to be placed on a list for reimbursement in the quarter when they expect to receive or purchase the vehicle. Once the vehicle is purchased and received, they submit a request-for-reimbursement form along with a copy of the original sales or lease contract."

Bonuses or forgivable loans? Most companies provide the benefit as a bonus, but structuring it as a forgivable loan can help to foster employee loyalty and retention. For example, Seventh Generation offers a $5,000 forgivable loan, with $1,000 of the loan amount plus interest forgiven each year over five years.

Taxes. Like other bonuses, incentives provided by employers for fuel-efficient vehicles are taxable compensation. Companies must include the amount of the incentive on year-end W-2 earnings statements, and the cash is subject to payroll taxes and withholding.

Tax rebates. Although companies do not receive any tax credits for providing fuel-efficient-vehicle incentives, employees do receive federal tax rebates as well as tax breaks in some states. The federal government and some state governments provide tax credits to those who buy hybrid vehicles. The federal government provides tax credits based on model and year purchased. For example, the 2006 Toyota Prius has a $3,150 tax credit. Maine offers a partial sales tax credit of $300 to $500 to hybrid-vehicle buyers.

Companies can also help employees reap additional incentives elsewhere. For instance, Traveler's Insurance offers hybrid owners a 10 percent discount on auto insurance.

Here to Stay

HR professionals at companies offering incentives for fuel-efficient vehicles don't see the benefit fading away anytime soon, even if gas prices decline. "Gas prices aren't going to drive this policy," Lowe says. "It's about CO2 emissions."

Blaisdell agrees. "We don't have any plans to discontinue our hybrid-incentive program. Global warming isn't temporary; it's a long-term crisis requiring a long-term commitment. Our plan is always to design our programs and initiatives with sustainability in mind. This is a program we hope to continue indefinitely."

Adds Langer: "Presumably, the appeal [of a hybrid-incentive benefit] would diminish if hybrids became a large percentage of vehicles sold, but that won't happen soon. Hybrids have only recently exceeded 1 percent of total U.S. [auto] sales. Certainly, companies should not lose interest if fuel prices drop."

The incentives are even more important if gas prices do drop, experts say, because employees may no longer be motivated by gasoline savings.

Although hybrid-vehicle incentives may be good for the environment, they may not be the best benefit for every company. Depending on the company's products, services, culture and location, hybrid-vehicle incentives may not inspire employee purchases or employee loyalty.

For instance, currently there are only a few 4-wheel-drive hybrid vehicles on the market, so the incentive may not make sense for employees in cold climates where it snows often. Also, because this incentive has no tangible return on investment, it may not be attractive for companies that aren't interested in the intangible benefits of recruiting environmentally conscious employees or in branding a "green" image in the marketplace.

"As with any benefit, it's always helpful to gauge interest among your employees first," Blaisdell says. "If you design an incentive that isn't relevant for their lifestyle or doesn't meet their needs, it's less likely to succeed."

Kathryn Tyler, M.A., is a freelance writer and former HR generalist and trainer in Wixom, Mich. She has been writing business articles for 12 years.

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