Even with an enviably low turnover rate of only 16 percent, private fleets still list driver recruiting and retention as major concerns. At the same time, these fleets face continuing pressure to cut costs without sacrificing customer service. Many are addressing both issues by switching from traditional hourly/overtime wages to pay plans based on activities performed.
The issue behind the change is operating efficiency, not compensation, explains private fleet veteran John Hinton. "What they're trying to do is change the drivers' work habits. When they're paid by the hour, they have little incentive to maximize productivity."
And the goal isn't – or shouldn't be – to reduce individual driver costs. If an activity-based system is set up correctly, drivers who step up their productivity will also increase their earnings. For fleets, higher productivity means fewer trucks and drivers will be needed to do the same job.
"Let's face it, this is what the third-party guys have been doing for years," Hinton says. "They look at a private fleet with 100 drivers and say 'I can do that with 80.' If each driver is costing you $50,000 a year, take out 20 and that's $1 million saved."
But private fleets shouldn't have to outsource to save money, he adds. "I'm a big proponent of the argument that if you can do it yourself you can do it cheaper. Let's say the third party is telling you, 'I can save $1 million a year in driver wages and I can do it for $500,000.' Even if the private fleet reduces the number of drivers to 85 instead of 80, the company is still going to be money ahead."
Productivity-based pay is hardly new to trucking. On the for-hire side, most drivers are paid by the mile. According to a recent web survey done by the National Private Truck Council, about 47 percent of private fleets still use an hourly rate to determine base pay (excluding bonuses and incentives), but more than a third use a mileage rate and another 9 percent pay drivers per delivery.
There isn't a single formula that fits all operations, says Bob Boyich, vice president, sales and marketing for CPC Logistics, a nationwide provider of contract drivers and related services. Some private fleets choose an hourly base but with mileage and time allowances. Others choose a per-mile plan with flat-rate pay for non-driving tasks. "Hybrid" systems might use hours and overtime, or miles and activities, whichever is greater. Route drivers might get a salary plus commissions.
"If you look at the entire population of trucking companies you'll find as many pay programs as there are days in a year," he notes. "The bottom line is that you want to pay drivers for what they do, but you'd also like them to be productive and effective." Typically, that starts with a detailed evaluation of the operation and the job.
"We know what a day's pay is, but how do you define a day's work?" asks Hinton. "We know the driver's day is 14 hours because that's what the rules say. But what do you want him to do in those 14 hours? Make a certain number of drops? Travel a certain number of miles? And you have to factor in other activities like pre- and post-trip inspections, fueling, paperwork and equipment washing."
Some activities, like fueling or pre-trip inspections, can usually be assigned a standard time allowance that will work for all drivers in the fleet. Times required for other tasks can vary significantly. For instance, two routes with equal mileage may have markedly different drive times because of traffic, speed limits and other conditions the driver can't control. One customer may get trucks in and out quickly. Another may require more time for paperwork. One may want the driver to unload the pallet and leave it at the dock. Another might want the driver to take it into the warehouse or store.
"You've got to think like an industrial engineer," Hinton says. "Do time studies. Ride with drivers. Get information from trip records." Although fleet managers often think they know where the problems are, "you have to take a step back," he advises. "You just about have to walk through the gate with a driver to find out what's really going on."
In order to win driver confidence and trust, any fine tuning should be done before the program is implemented. "You can go back later and make adjustments, but the only adjustments you really want to make are if something materially changes," he says.
The program should have some flexibility. Adding 15 minutes "delay time" to a trip saves a lot of hassle down the road. And fleet managers should be willing and able to make allowances for equipment breakdowns, traffic snarls, and other unforeseeable delays. "If a driver can substantiate the claim, you should be willing to write the check," Hinton says.
Not surprisingly, productivity pay systems can be a tough sell. "For many years the hourly/overtime system has been kind of the gold standard for private carriers," Boyich notes. "Productivity-based systems can be hard to understand, and many drivers are suspicious."
To overcome those suspicions, fleet managers must have "very, very good information about the new system and what's in it for drivers," he says. "A lot of statistical work is required to measure everything fairly. You need to communicate that to the drivers." A plus, he adds, is to involve a couple of key drivers in the measurement process. "That way you get the buy-in because you have drivers who understand the system and can verify to their peers that it's fair."
Drivers should be given clear examples to show how the plan will work. Fleet managers should also explain the intent of the program and the projected outcome. "Honest communication is critical," Boyich stresses.
"You have to lay all your cards on the table," Hinton says. "Drivers don't like it when carriers mess with their pay, and they really don't like it when they feel you're taking something from them. Remember, you're trying to change the guy's inefficient work habits. You're still paying him to fuel the truck and to do the pre-trip, but now you're telling him how long it should take. You have to be willing and able to sit down one-on-one with drivers and review the old versus the new."
Effective pay systems reward productivity, but they must also reward safety. "When you set up a compensation structure to encourage productivity, the push-back you typically get is 'you're going to make me rush through my day, and if I do that I'll have more accidents,'" Boyich explains. "So the compensation package must have built-in safety incentives. The message you have to convey is that you want drivers to be more productive, but not at the expense of safety."
The National Private Truck Council will offer a workshop on driver productivity at its 2007 Educational Management Conference & Exhibition, April 29-May 1, in Indianapolis.
The organization also offers online training and seminars on driver management issues throughout the year. For more information go to the Professional Development section of www.nptc.org.
Last year NPTC and J.J. Keller & Associates sponsored a two-part webcast, "Driver Pay and Productivity." The webcasts can be downloaded from www.jjkeller.com (search NPTC).