Driver pay: Know your target

Consider it the holy grail of trucking, the genie in the lamp, or maybe a unicorn. In the era of razor-thin margins, fierce competition, and the expectation of perfection from customers, the most important cell in the spreadsheet could well be driver pay. And every company is looking for the same thing, that golden mean: a pay package that distinguishes a carrier from its peers, that attracts drivers and keeps them around—and that, somehow, doesn’t break the bottom line.

Complicating the quest is a softening economy that makes it all the more challenging to find those extra pennies per mile for driver pay. Although for some, the efforts are paying dividends. Werner Enterprises credited sizable wage increases in the fourth quarter of 2015 with a 17-year low in the turnover rate to start 2016. So there’s hope.

According to a new survey by HireRight, 59% of respondents said that finding, retaining and developing talent was their top business challenge. Respondents to the 2016 Transportation Spotlight Report are investing in monetary benefits, including increased pay (51%), upgraded equipment (49%), and recognition/rewards programs (41%). Non-monetary benefits are also gaining popularity, with 57% investing in driver appreciation events and 35% providing flexible work arrangements.

Additionally, driver retention and engagement starts during the screening and onboarding process, with 34% of respondents investing in improving the candidate experience by creating longer orientation/training periods and appointing a driver liaison/mentor to new drivers.

Indeed, industry data has shown that 90% of drivers decide they will stay at an organization within the first six months on the job, yet, according to the report, 32% of respondents are not utilizing retention tactics for new hires.

The right way to set driver pay is straightforward, in concept: Do what works. But it’s the execution that distinguishes progressive management from fleets that, increasingly, will have a hard time recruiting drivers and a harder time retaining them.

Hitting the bulls-eye

The good news is plenty of smart people are looking at the data, spotting trends, establishing benchmarks, and coming up with innovative ways to keep truck drivers satisfied and motivated.

The days of keeping an eye on a competitor’s per-mile pay rates and matching them are largely gone, explains Gordon Klemp, founder and president of the National Transportation Institute (NTI), who has been collecting driver pay data for 20 years. Pay plans now must be tailored for markets and for the different types of work, not only across the industry but within each trucking company, he explained during a recent presentation hosted by Stifel Financial Corp.

According to NTI’s 2015 National Survey of Driver Wages, the basic rate per mile ranges from 38.4¢ in the Southeast to 41¢ in the Northeast, with the national average coming in at 39.3¢. Critically, one nationwide rate for a carrier is “no longer sustainable,” Klemp explains.

One carrier NTI works with has 13 different iterations of its pay package. They also subdivide the market regionally, by equipment type, and in terms of hazmat, non-hazmat and even if the driver is handling freight.

“It’s really a much more sophisticated way to approach the market and be able to take advantage of the niche pay trends that tend to occur out there,” Klemp says.  “A lot of people are looking down to the city level, so when you’re throwing a dart, you’re on the bull’s-eye that you’re aiming for every time.”

“It’s not just sticking around. It’s sticking around and doing a good job.”

- Beth Carroll, managing principal, Prosperio Group

Of note, Klemp points out that the most recent run of driver pay increases—or pay cycles—began in July 2014 and ended in January, and at 19 months (compared to the 33-month average) that’s the shortest NTI has recorded “by a lot.”

“A lot of people jumped in and made changes in a very short period of time, and I think it had to do almost exclusively with the fact that drivers continue to be more difficult to recruit,” Klemp says.

And to retain. Once again, the turnover rate for large carriers is above 100%, according to the latest data from the American Trucking Assns. Inconsistency in mileage-based wages is partly to blame. “You may be making $54,000 a year, but it’s not in 52 increments,” he says. “It’s not a very regular paycheck. It tends to go up and down a lot.”

So, fleets increasingly are turning to guaranteed pay. For those that have implemented plans carefully, retention has improved. And guaranteed pay is a lot less expensive than the cost of turnover. 

Additionally, NTI finds that safety pay incentives are continuing to grow. Klemp notes that the criteria should be simple, such as no accidents or moving violations.

And the difference between private and for-hire fleet pay is an industry concern. Driver pay among private fleets in 2015 averaged more than $66,000 versus $54,000 in the for-hire segment. The gap is due to experience, skill, and job demands, Klemp says.

Correspondingly, the $54,000 driver is turning over at a rate of about 100% compared to just 14% at private fleets. “The difference is huge,” he adds.

Prosperio Group, a specialist in compensation planning for the transportation and logistics industry, has also developed a compensation survey focusing on truck driver pay. The initial survey, released in January, covered 26,000 drivers and was able to return results on 30 states and 50 metropolitan areas.

Managing Principal Beth Carroll is quick to note the Truck Driver Measure­Up Compensation Survey includes both for-hire carriers and private fleets, which is “more reflective of the labor pool.”

The survey returned a median pay level of $62,500 per year, ranging from basic local drivers at $40,000, over-the-road truckload drivers at $55,000, flatbed at $57,000, and LTL at $60,000, climbing to $70,000 for specialty/permitted long-haul drivers and to $77,000 for “high-touch” food service drivers.

“I think it is myopic for for-hire carriers to think that they can just ignore private fleet pay levels. If you have a CDL, you can drive for either,” Carroll says. “In the hierarchy of truck driving, private is where the good drivers want to be ...  [for-hire fleets are] always going to be competing at the bottom of the pool.”

Carroll spots three key trends from the survey:

• Guaranteed miles or guaranteed pay per week. This is good for all drivers as it reduces pay fluctuations, reduces risk, and increases stability, according to Carroll.
• Fuel bonuses based on driving habits. This is a “win-win” as the company and the driver can both benefit from reduced fuel usage, she notes.
• Tenure and performance are being combined for giving annual increases versus looking at tenure alone. “It’s not just sticking around, but sticking around and doing a good job,” Carroll says.

But performance-based pay must be carefully structured, and this can be problematic if not everyone agrees about which tasks are more difficult—or more important. Long-haul drivers, away from home and living in the cab, may think their job is worth more than the labor-intensive work of a driver who has to handle deliveries but gets home every night.

Carroll also points out that while compensation is the reason people work, not everyone perceives compensation the same way. For some, the pay stub is “the whole story.” For others, the responsibility, challenge, recognition, growth opportunities, and respect are also important.

Managing expectations

When it comes to recruiting and retaining drivers, devising driver pay and incentives based on management instincts or on what the competition is doing is a hit-and-miss process at best. Often, such programs are expensive and counterproductive, says Stay Metrics CEO Tim Hindes. The key is to gather actionable data, and trust it.

And an eye-opening nugget from Stay Metrics’ findings is that driver pay is not nearly as important to driver defection as many in the industry assume. In fact, according to Hindes, pay turns out be an accurate predictor of turnover only 20% of the time.

The trick is to find out why the driver really left.

“As far as pay, a lot of our work is focused on helping the carriers to help the drivers set realistic expectations—and realistic job previews are not the norm in trucking,” Hindes says. “The mind-set has been to roll the dice and get the recruit in the seat. Conversations that could be perceived as a threat to having that driver choose your company just are not taking place.”

So, simply, the Stay Metrics program calls for 7-day and 45-day interviews to assess how well expectations were defined. A “trigger question” in the 7-day survey deals specifically with driver pay, and if a new response comes in above the range specified by the company, the system automatically transmits an alert to the recruiting department, advising that the driver’s pay expectations are unrealistic.

“It gives you the opportunity to do something from the get-go,” Hindes says. “There are two fixes. You get a chance to see how well recruiters are discussing expectations. One recruiter might do very well with pay but not be accurate in talking about home time, for example—and that’s actionable data for carriers. Second, you have a chance for an intervention, to check in with that driver and emphasize all the great reasons he chose you in the first place, but let him know that his pay expectation is not realistic.”

The 45-day interview focuses on a series of expectations that are rated on a scale of how well they’re being met.

Again, carriers have the opportunity to assess and better align the driver’s expectations with reality.
For those carriers that focus on making sure they can deliver what they promise, turnover is half the industry average, Hindes notes.

Unintended consequences

He warns, however, that carriers sometimes inadvertently build pay structures that actually encourage drivers to leave and make carriers a “stepping stone” to a better job.

“We have seen models where a driver gets to a certain plateau, and he looks at the experience he has and at the market, and he decides to leave because he can actually make 7¢ to 10¢ per mile more somewhere else,” Hindes says. “Carriers build pay packages assuming a driver will stay for a career. But right at about six months to a year, they often leave because that part of the package is so far off the market. There are carriers that make a living poaching that level of driver.”

But carriers are reluctant to make the investment to retain that group of drivers because they assume they’ll lose them anyway, he suggests. The solution is to schedule the steps to encourage new hires to stay more than three years. After that, “you’ve got to screw up pretty bad”  to run off a significant number of veteran employees.

“When we see carriers that’ve lost a lot of people with more than three years’ experience there, we ask what happened to their culture,” Hindes says. “Without something big happening, those drivers aren’t leaving as long as they see the carrier, in good faith, move with the market on pay and other things.”

Stay Metrics is also a big proponent of rewards programs “on top of pay, not in place” of pay.

“The smart fleets get it: They don’t have to have the best pay packages, but they are competitive,” Hindes says. “And now they’re going to add a rewards and recognition program that’s not just trinkets and trash.”

Successful programs encourage drivers to accumulate points over months and even years to be exchanged for significant prizes, from flat-screen televisions to cruises.

Of Stay Metrics’ 60 carriers with rewards programs, the pool of drivers is 38% more likely to stay if they are “engaged” with the program—and that can be as simple as logging in to report their points—than those drivers from the same fleets who do not participate.

And it’s up to carriers to decide where to focus the incentives.

“If they can report it, they can reward it,” Hindes says. “It’s the same thing as a $10 a week raise, but drivers clearly get more excited about earning a big TV for their family at Christmas.”

And if it keeps them in fold, everyone wins.