A Better Way to Pay Drivers
By Joseph Evangelist
Executive Vice President, Transervice
As originally appeared in FleetOwner Magazine’s IdeaXchange
Activity-based pay. Incentive-based pay. Productivity pay. Call it what you want, there is a better way for you to pay drivers other than by the hour.
The premise of incentive-based /productivity pay is to ensure drivers are motivated to perform. It is geared toward making the delivery process precise as opposed to “make as many stops as you can make in an eight-hour shift.”
With this type of pay structure, the route pays a predetermined amount per activity. Activities include things like pre- and post-trip inspections, drive time (taking into consideration time of day in order to calculate predicted road speed), fuel time, stop time, wait time, break time and layover time, if applicable.
Let’s use an example a 100 mile round-trip delivery route that has five stops.
It is expected that the route can be completed in eight hours. If the driver is paid $25 per hour and completes the route in eight hours, he makes $200. But if it takes the driver 10 hours, the pay is $250. Some drivers may be inclined to “milk”’ the route so it takes 10 hours instead of the anticipated eight in order to earn the extra money.
On the other hand, using incentive-based/productivity pay, a driver is paid $25 per stop, plus 50 cents a mile, plus $25 per route. In this example the driver will earn $25 x 5 stops = $125 + .50 x 100 miles = $50 + $25 for the route, for a total compensation of $200. The driver earns this same amount of money whether the route takes seven, eight or 10 hours. Obviously it’s in his best interest to complete the route as efficiently as possible, because if he has Hours of Service (HOS) eligibility left he can pick-up another load.
I have seen fleets switch to incentive-based pay that have achieved an immediate 15%-20% productivity increase. The end result of moving to an incentive-based pay package is either more work per driver, or less drivers needed to get the work done. In some cases, a fleet can gain additional business because it has the extra manpower available.
Ultimately, the goal of incentive-based/productivity pay is to ensure a fair day’s pay for a fair day’s work — for both the driver and the fleet.