April 2014, TruckingInfo.com - Cover Story
Recruiting and retention. It’s akin to bailing water out of a boat that has a hole in it. You really have to plug the hole first, otherwise you’re constantly fighting to stay afloat. In the trucking industry, that hole is driver retention.
One thing the experts agree on is if your company has an incentive rewards program, the rewards need to be given in a timely fashion. (Photo courtesy of A. Duie Pyle.)
In the past, you might have been able to keep afloat by bailing. But today, as increasing regulations and demographic factors shrink the pool of qualified drivers available, it’s like that bucket you’re using to bail has gotten smaller.
Large truckload carriers have seen their turnover rate hold above 90% for eight quarters in a row, according to the latest figures from the American Trucking Associations.
“I think our industry has traditionally had a greater emphasis on recruiting and making sure they have a healthy pipeline of candidates coming in, but they just can’t recruit fast enough if you’re losing drivers at a fast pace as well,” says Vikas Jain, vice president of product management and software as a service at Omnitracs, which says it can use data analytics to predict which drivers are at risk for leaving the company.
“I am hearing more and more fleets are focusing their efforts on retention as opposed to recruiting,” he says.
Generally drivers cite two main broad reasons for jumping from one company to another: pay and respect. And the same factors that can keep drivers with your company can also help attract new drivers to your company – especially when you consider the importance of word-of-mouth and referrals.
In a recent survey by background screening company HireRight, 39% of the transportation companies responding said they are increasing pay, and almost as many (36%) said they are offering various incentive programs.
They have to make up lost ground when it comes to pay, according to Gordon Klemp, head of the National Transportation Institute, whose National Survey of Driver Wages has been tracking driver pay for years.
The survey’s 2013 figures for median dry van pay show an annual paycheck of $47,544. Pay per mile, Klemp says, was up 1.92% last year. However, he notes, mileage pay for dry van drivers went down in 2008 and 2009 during the recession.
“It has slowly been coming back beginning in 2010, but it’s only up 3.3% since 2008.”
The average dry van pay today is 37.2 cents per mile, compared to 2008 pay of 36 cents per mile. However, he says, that’s not taking inflation into account. “Just to make up for the modest inflation we’ve had since then, it would have to be 40.28 cents per mile,” he says. “So in real terms, drivers have lost about 2.25 cents in that period of time.”
While it’s too early to call it a trend, Klemp notes that several large fleets are implementing pay increases “in the neighborhood of 3 cents per mile. Those are the biggest pay increases we’ve seen since 2005.”
Over the last few years, he says, he’s seen a lot of small pay increases by the bottom half of payers, but not a lot from the top-tier payers, except in the flatbed market. “So we’re seeing early signs that it may be a more vigorous year for pay moves.”
Con-way Truckload ended 2013 with a driver turnover rate of 66% and part of their success in retaining their driver workforce is through the different tools and programs it offers.
Moving away from mileage
Mileage pay, however, tells less and less of the story of driver compensation today. More companies are avoiding across-the-board mileage pay increases in favor of various incentive packages, bonuses and incentives that reward the best performers.
“In the last five years we have seen a new strategy, which is bonuses,” Klemp says. It’s really not new, he says, “but we’ve never seen them quite like they are today.”
It starts with sign-on bonuses.
“One of the things the marketplace is trying to do is offset the lack of movement in the mileage rates with one-time front-end payments,” Klemp says. For a solo van driver, he says, sign-on bonuses run as high as $6,000. For flatbed drivers, he’s seen as high as $7,500. And teams? “It’s insane,” he says. “We’ve seen them as high as $15,000. At any one time, you can usually find [sign-on bonuses for teams] of between $8,500 and $10,000 for dry vans.”
But sign-on bonuses are just the beginning of the bonus process.
“We’ve got more and more people joining the ranks of those who offer incentives for improved productivity” and other metrics, Klemp says, including fuel efficiency and safety – for the most part, factors “that translate directly into things that improve the bottom line.”
Fuel economy is a major driver of these types of programs. But perhaps just as important is safety and compliance. HireRight’s Stevens says many such programs began centered around the Federal Motor Carrier Safety Administration’s Compliance, Safety, Accountability program. “They want to drive the right behavior to maintain that good CSA score.”
Some other operations are moving away from mileage pay altogether. One such fleet is Lousiana-based Dupré Logistics, which has a driver turnover rate of 34.5% for the past 12 months. About seven or eight years ago, Dupré decided to take the radical step of paying their drivers not by the mile but by the hour.
“Drivers are paid for everything that they do,” says Jim Barnett, vice president of operations. “It really incentivized our drivers to be safe. They don’t need to rush to cover those miles as fast as possible to make up for the time at the dock they weren’t being paid for.”
While this type of pay system did take some adjustment for both the company and its drivers, it has become a source for many driver referrals.
“When prospective drivers first look at how we pay drivers by the hour, they are disbelieving that it can be beneficial for them,” Barnett says. “But when our drivers tell other drivers about how it really works, new drivers believe it and our referral program generates a lot of interest in our company.”
Effective compensation packages
There’s a science to employee compensation packages. It’s long been used in the sales world, where Beth Carroll worked as a sales compensation consultant for 10 years. She realized that truck drivers, in a way, are like salespeople – they have a high degree of control over their performance, and their pay is 100% variable. If they don’t drive, they don’t get paid. If salespeople who are paid entirely on commission don’t sell, they don’t get paid.
“So it makes sense that the ideas from sales compensation are making their way into the trucking world, using sound psychological and mathematical design principles,” says Carroll, who started her own firm focusing on transportation and logistics, Prosperio Group.
Many fleets have tried some sort of variable pay scheme, Carroll explains, “but companies are really struggling – they’re just making things up. They don’t know that there’s actually a process and a method and some really sound statistical philosophy that is behind incentive plans.”
Many plans get it wrong on the psychological side, she says. For instance, plans that are positive work better than ones that are punitive.
“I see a lot of plans out there where the drivers are starting from a number of points at the beginning of the month and they lose points based on violations or bad fuel usage,” Carroll says. “That is absolutely the wrong psychological message, because the only place the driver has to go is down. You always want people to have the ability to improve.”
Klemp has seen this with the fleets he works with. Successful plans, he says, “tend to be plans where you have good percentages of drivers exceeding the minimums. There’s always hope for the driver that he’s going to make more money.”
Some operations are moving away from mileage pay. One such fleet is Dupré Logistics, which has a driver turnover rate of 34.5%. The company pays their drivers not by the mile but by the hour.
Another thing Carroll and Klemp agree on is that incentive rewards need to be given in a timely fashion. Just as parents need to discipline or reward children as soon as possible following the desired or undesired behavior, fleets need to tie the incentive to the behavior in the driver’s mind.
In the past, Klemp says, bonus programs were largely yearly. “A year’s a long time for a driver, so plans that pay off yearly have never done much to excite them,” he explains. “But these quarterly plans are pretty effective, based on the feedback we’re getting from our clients.”
Carroll says even that approach has some drawbacks, if drivers get additional pay in the next quarter based on how well they did in the previous quarter.
“It is a little bit disconnected in that now the driver has to do well in two performance periods to really see the benefit from it – they have to drive a lot in the next quarter to get the benefit of that rate.” What if the driver had planned a two-week vacation for that quarter?
Better, she says, might be a cash bonus at the end of the quarter. “In sales, we always talk about if you could hand them the money immediately after the sale, the better the response.”
At Illinois-based Nussbaum Transportation, a quarterly bonus program uses sophisticated driver scorecards that measure fuel efficiency, safety and other factors to determine a simple gold, silver or bronze level reward.
“If you’re asking people to go the extra mile, it means a little more if they are rewarded for that,” says Jeremy Stickling, director of human resources and safety. The truckload company’s turnover rate hovers around 30%.
Dupré Logistics has moved even closer to the ideal of immediate rewards, having just rolled out an incentive program drivers are able to attain weekly based on their performance. The program addresses the problem of a driver who does a great job looking at the guy who does an average job and being dissatisfied because they’re paid the same, Barnett explains.
“It’s not a raise. Drivers have to earn it every week,” Barnett says.
In addition to making the reward as close as possible to the event, Carroll says, best practices in a motivational compensation plan include having clear targets so drivers know what’s expected of them, and providing constant feedback.
Klemp notes that these types of programs depend on a high level of communication. Drivers get some sort of a scorecard update on a weekly basis, and may even have real-time feedback in the cab on factors such as fuel economy. Today’s technology is making that a lot easier.
Klemp and Carroll both note that there may be some pushback from drivers who are fans of longevity pay.
“One of the things fleets are doing is moving away from tenure-based pay and more toward performance-based pay,” Carroll says. “Drivers are getting paid more for the job they’re doing rather than for just sticking around.”
However, longtime drivers may balk.
“Fleets tell me they’ve lost a few drivers when they implement this, and in some cases they’re good drivers, but they’re fixated on the longevity thing,” Klemp says. “There’s kind of the ingrained understanding that ‘The longer I’m with you, the more preferential treatment I should get and my pay should be going up.’”
Carroll says you can craft a program that combines the two, rewarding both performance and longevity.
Compensation, of course, is more than just salary, or even salary and bonuses. Benefits are a large part of the picture, especially with the changes going on in the healthcare market because of the Affordable Care Act.
However, it’s important to understand the cost of the benefits you are offering as well as whether your benefits plan is competitive or even a competitive advantage.
That’s why benchmarking your benefits plan can be valuable, says Anthony Fiorette, chief benefits officer at HNI, an insurance and consulting company.
As health insurance costs have gone up, he notes, many companies are increasingly passing those higher premiums along to employees. However, that can backfire. As costs escalate, healthy employees may opt out of your plan, choosing to go without, sign on with a spouse, or use one of the new health insurance exchanges under ACA. Eventually you end up with the sickest people still on your plan and may end up paying more total for fewer people.
Because health insurance is such an important benefit, Fioretti says, such a situation could even cost you drivers. “They might love the company, but gradually it erodes their paycheck and they’re going to have to make financial decisions for their family,” which could involve finding a new job.
“We’ve had client companies with really low-value benefits starting to lose drivers, losing some of their good people,” he says.
Benefits benchmarking can help you identify situations where your benefits plan needs attention. It also can identify unusual benefits you may not have thought about that you could adapt, or that inspire you to create your own unique benefit plan that you can use to set yourself apart in a driver’s mind.
There are a number of published surveys that offer benefit benchmarking in a tremendous amount of detail, and many also segment by industry, Fiorette says. One you’ve probably heard of is the Kaiser Family Foundation, which has a survey focused on healthcare, but there are others that offer broader benefits information.
You also can work with a consultant, broker or adviser and ask them to compare your benefit offerings with their entire client base. HNI offers this service.
Another option, he says, is to work with a third-party survey company and do a survey customized for your own needs. If you have a local or regional company, you may only want to find out how your benefits stack up compared to others in your area who are competing with you for drivers.
“Benefits are part of what people expect in their compensation programs,” Fiorette says. “Firms don’t blindly choose a rate of pay for people, so why would they do the same thing with benefits?”
Addressing the “softer” issues
It will take a combination of things to get more drivers behind the wheel and keep them there. Pay is a big one, of course. But there’s also the very important need to address the “softer” issues of how drivers are treated.
Many complain about feeling like second-class citizens, especially those who are out on long-haul duties and rarely even see their coworkers or driver managers.
Creating a positive corporate culture for your drivers is just as important for retention as any other measure you take, according to fleets we interviewed that have low driver turnover rates.
“Driver retention comes down to having quality relationships with your drivers,” says Andrew Winkler, director of operations at Nebraska-based Grand Island Express, which had a driver turnover rate in 2013 of 36%.
“Happy drivers don’t leave good carriers. Treat them with the respect they deserve…and that starts at the top. Our president insists on meeting face to face with each new driver or orientation class.”
Connecting with your drivers is important all the time, but it starts during orientation.
“We make sure we engage our new drivers for feedback during their orientation to make sure if we are missing something in their orientation, we have the ability to right it,” says Mark Johnson, director of human resources with A. Duie Pyle, a Northeast truckload, less-than-truckload and warehousing operation with driver turnover in the single digits. “After orientation, a driver is chosen each day from each terminal to talk about how their route was, did everything go as it was supposed to, was there anything unexpected. Just to make sure everything is going as the driver expects.”
At Dupré Logistics, Barnett says drivers have weekly communications with their managers, who are soliciting feedback of what the drivers are seeing in the field. “When you are interested in your drivers and it’s sincere, it pays off every time,” he says.
Being constantly available to your drivers is key, according to Landstar’s Rocco Davanzo, executive vice president of capacity development.
Florida-based Landstar uses about 8,000 owner-operators in operations ranging from truckload to LTL to intermodal, and its turnover is less than 30%.
“We have dozens, if not hundreds, of events where our management is speaking directly to the owner-operators,” Davanzo says. “We are very open in terms of feedback from our owner-operator community. We make sure we listen and follow up what we learned from that investigation after that discussion.”
Communications need to extend beyond the level of the driver manager, as well.
To help with this, Celadon earlier this year established a Drivers Relations team, explains Celadon’s Joe Weigel, director of marketing and communications, “providing our drivers with another point of contact at the home office, especially when ‘non-operational’ issues arise. Their mission is to serve as another voice for the drivers at the home office.”
“I think there is a growing acceptance or awareness that it isn’t all about the money,” says Omnitracs’ Jain, whose FleetRisk Advisors product not only predicts drivers who may leave but also provides situation-specific coaching suggestions to help managers communicate with the driver about their problems. “Compensation has to be competitive, there’s no doubt about it – you cannot underpay drivers and expect high retention – but they are also understanding that many other factors come into play.
“It’s about driver management, driver connection, making them part of a team and keeping high employee morale.”
The coming shortage
The turnover rate at large truckload carriers fell six percentage points to 91% in the fourth quarter of 2013, but held above 90% for the eighth consecutive quarter, according to the American Trucking Associations.
“We saw turnover at fleets with at least $30 million in annual revenue bottom out near 50% at the depths of the Great Recession and have increased steadily since,” ATA Chief Economist Bob Costello says. “The rate appears to have flattened out at an elevated level for the moment. However, it could easily increase as tightness in the labor pool should continue, and even worsen, as the economy improves.”
Costello expects stronger economic growth and increased growth for the trucking industry this year, which in turn will put more pressure on the driver market and the driver shortage.
“At the moment, we already have 30,000 unfilled jobs for drivers in the trucking industry,” he says. “As the industry starts to haul more because demand goes up, we’ll need to add more drivers – nearly 100,000 annually over the next decade – in order to keep pace.”
The industry has been talking for a couple of years now about the impending cliff, at which point drivers will become so scarce in relation to the freight to be hauled that some ends up sitting on the docks, and carrier rates go up.
“We won’t know until we get there,” says Gordon Klemp, head of the National Transportation Institute, which tracks driver pay. “If you recall the oil crisis in [the ‘70s], in a few days all of a sudden we went from normal pricing to gas that doubled overnight, and it’s because we reached a cliff. The cliff is when you no longer have that equilibrium. There’s a certain percentage short you can work; we’re short but we keep finding ways to make it up.
“If we have a 3-plus-percent increase in the GDP this year, I think we might step over the cliff all of a sudden, see spot market rates skyrocket and some freight that waits to get hauled.”