Kuala Lumpur - Companies need to revise current compensation and benefit practices to help employees cope with higher cost of living, according to a recent hot topic survey conducted by Hewitt Associates, a global human resources services company. It stated that the increase in fuel prices announced on June 4th 2008 by the Malaysian Government has been substantial and it definitely calls for companies to revise their current policies. The survey was conducted to gather information on the impact of the recent fuel hike on companies' benefits policies.

Car / Transportation Allowance

24% of the 90 companies who participated in the survey indicated that there is definitely a need to revise their current allowance whereas, 50% of the participants indicated that they would probably need to make revisions but would have to study the impact of the fuel hike further.  Companies envisaged that the increase will mainly be in the range of 20 to 30%, and most of them indicated that the revision will be done prior to the end of 2008. 

Surendran Ramanathan, Practice Leader of Hewitt's Retirement and Benefits practice for South East Asia said, "Companies should first do a study and determine the objective of providing car or transportation allowance. Is the allowance intended purely to cover the purchase and financing of the car? Is it meant to cover all running expenses, e.g. maintenance, insurance etc.? Is it to cover fuel cost, if so only business travel or personal travel as well? Once the objective is determined, companies will then be able to make the appropriate revisions by doing a cost analysis.  If the objective is not clear, companies could end up compensating too much or too little."

Mileage Claim / Reimbursement

Companies typically reimburse employee for business travel to cover the fuel expense, maintenance, wear and tear of vehicle. According to the report, more than half of the companies (53%) revised their mileage claim policy between 1 to 3 years ago.  This was predominantly a result of the last fuel hike in February 2006. Almost all companies (91%) of companies expect a revision to be done within the next 6 months. The median reimbursement practice for car is currently at RM0.60 per km and this is expected to increase to RM0.80 per km.  For motorcycle, the median is expected to increase from RM0.30 per km currently to RM0.45 per km.

Apart from deriving the revised policy by benchmarking against the market, companies could also do a cost analysis by factoring all the costs incurred in running of the car, this could include fuel, maintenance, insurance and all other running expenses.  However, the challenge is that the cost components could vary by type of car, traffic conditions etc.

Impact on Compensation Practices

76% of companies indicated that there is a need to compensate employees with additional salary increase this year due to the expected increase in inflation.  66% of companies said that this adjustment will be provided for in the next salary revision cycle, whereas 19% said that they will provide an ad hoc adjustment prior to the next salary increase cycle.

Prior to the fuel hike, the median budgeted increase expected by companies was about 6% for the next salary increase cycle. Subsequently after the fuel hike, companies have indicated that they would likely revise their expected salary increase upwards. Overall, the upward revision envisaged is in the range of 1% to 3%.

Ramanathan adds, "Companies need to factor in the higher expected inflation rate this year when determining their next salary increases. This could have a different level of impact on various employee categories. Typically the lower salaried employees will be highly impacted. Therefore, companies need to consider this when determining the rates of increases."  

No doubt that all companies will be burdened with the rising cost.  The immediate reaction of companies is typically to look at ways and means of cost cutting. At the same time, employees will be expecting higher salary increases to cope with their daily expenses and therefore cutting salary cost in this instance may not be wise.  In fact companies would need to consider providing higher salary increase which would lead to increased employment cost.  Therefore, companies would need to look at other options of reducing cost and to be more prudent in their spending.

About Hewitt Associates

For more than 65 years, Hewitt Associates (NYSE: HEW) has provided clients with best-in-class human resources consulting and outsourcing services. Hewitt consults with more than 3,000 large and mid-size companies around the globe to develop and implement HR business strategies covering:  retirement, financial and health management; compensation and total rewards; and performance, talent and change management. As a market leader in benefits administration, Hewitt delivers health care and retirement programs to millions of participants and retirees, on behalf of more than 300 organizations worldwide. In addition, more than 30 clients rely on Hewitt to provide a broader range of human resources business process outsourcing services to nearly a million client employees. Located in 33 countries, Hewitt employs approximately 23,000 associates. For more information, please visit www.hewittasia.com.