A better way to pay drivers
By Joseph evangelist
Executive Vice President, Transervice
As originally appeared in FleetOwner Magazine’s IdeaXchange
Remuneration for activity. Incentive-based compensation. Productivity pays. Call it what you will, there’s a better way for you to pay drivers other than by the hour.
The principle of incentive/productivity-based compensation is to ensure that drivers are motivated to perform. It aims to make the delivery process precise instead of “making as many stops as possible in an eight-hour shift.”
With this type of compensation structure, the route pays a predetermined amount per activity. Activities include items such as pre and post trip inspections, driving time (considering the time of day to calculate expected road speed), fuel time, dwell time, waiting time, break time and layover time, if applicable.
For example, consider a 100 mile round trip delivery route with five stops.
It is expected that the route can be completed in eight hours. If the driver is paid $25 an hour and completes the trip in eight hours, he earns $200. But if it takes the driver 10 hours, the salary is $250. Some drivers may be inclined to “milk” the route, so it takes 10 hours instead of the scheduled eight to earn extra money.
On the other hand, using incentive/productivity pay, a driver is paid $25 per stop, plus 50 cents per mile, plus $25 per route. In this example, the driver will earn $25 x 5 stops = $125 + 0.50 x 100 miles = $50 + $25 for the route, for a total compensation of $200. The driver earns the same amount of money whether the journey lasts seven, eight or ten hours. Obviously, it is in his interest to complete the route as efficiently as possible, because if he still has Hours of Service (HOS) eligibility left, he can pick up another load.
I’ve seen fleets move to incentive compensation that got an immediate 15-20% increase in productivity. The end result of moving to an incentive-based wage package is either more work per driver or fewer drivers needed to do the job. In some cases, a fleet may win additional business because it has the extra manpower available.
Ultimately, the goal of incentive/productivity-based compensation is to ensure fair pay for a fair day’s work, for both the driver and the fleet.