Chapter 2
Developing a competitive wage package

In the spring of 2000, the Upper Great Plains Transportation Institute at North Dakota State University surveyed 736 drivers. It found that compensation was the primary cause of job dissatisfaction among drivers. A similar survey done seven years earlier ranked pay in fifth place.

Pay packages at most small carriers are the result of evolution rather than a well-thought-out strategy. The company founder starts out offering a pay package that imitates a local competitor or a former employer. The package changes in response to competitors or demands from current drivers.

If that is how your pay package was created, rethink what you are trying to accomplish with your pay plan. A well-designed plan should:

Compete with other carriers
While paying competitive wages does not guarantee you will keep your trucks full, with few exceptions, a carrier whose wages trail the competition will have open trucks.

Compensate drivers for all work
Before there was a driver shortage, the industry got into the habit of not paying or underpaying drivers for non-driving work, such as unloading trailers. Not paying drivers for all of their work is a major cause of turnover.

Make it easy for drivers to switch
If you want more experienced drivers, your wage package cannot keep them from joining you. A driver who makes 35 cents a mile now won’t be happy earning 30 cents.

Make it difficult for drivers to leave
Your wage package should be attractive enough to keep other carriers from recruiting your senior drivers.

With these objectives in mind, the following sections cover the major components of a truckload carrier’s wage package. For each of the components, there are statistics on what truckload carriers are paying single company drivers. This data is from The National Survey of Driver Wages (www.natlsrvy.com) and was compiled at the start of 2002. The survey is comprised of 230 pay packages. The carriers that make up the survey are primarily large national truckload carriers operating van, refrigerated and flatbed trailers. There is also a sampling of small truckload carriers.

Use the data to determine how your pay package stacks up against your competitors. The data shows:

• Percentage of carriers in the survey who offer a particular pay item.
• Minimum and maximum pay of all wage packages in the survey.
• 25th, 50th and 75th percentile rankings.
• Average for the pay item.

Using the percentile rankings, if your pay on an item is below the 25th percentile, you rank with the bottom quarter of all carriers. Pay at or above the 75th percentile means your company ranks in the top quarter of all carriers.

If this data does not apply to your type of operation, consider surveying what your competitors are paying their drivers.

Mileage pay
The hottest pay item in competing for drivers is the mileage rate (shown below). Many recruiters say that experienced drivers who call a company and don’t hear 30 cents a mile will hang up the phone.

One carrier had a low mileage rate but paid drivers a flat amount for making the initial load pickup and the final delivery. While this was probably a fairer method of compensation — the effective rate per mile was higher for short loads and less for longer ones — the carrier abandoned it. The concept was too difficult to sell to prospective drivers. In formulating a pay package, remember that only the driver’s opinion counts.

To make their pay package look more attractive, many carriers include all available bonuses when advertising their pay rate. Another trick is to list the top pay rate for a driver with 10 years of verifiable experience. Such practices usually backfire when a driver discovers that he doesn’t qualify for the advertised rates.

Most truckload carriers pay a different starting rate based on verifiable experience. Paying for experience means a senior driver may not suffer a significant drop in pay by switching carriers. He may even get an increase.

Retaining senior drivers is critical to reducing turnover. A small carrier cannot afford to lose any. Longevity increases are a way of ensuring that as a driver develops seniority with you, his pay rate goes up. The average carrier will provide the driver with regular increases through the first seven years of employment. At that time, the average driver’s pay is capped at 35.3 cents a mile.

Several major carriers currently pay new drivers with experience more than 37 cents a mile. A carrier that caps senior driver pay at 35 cents has created a gap between what they pay and what the driver can earn elsewhere.

Most drivers won’t leave a carrier where they are basically happy for 2 to 3 cents a mile. But once the gap increases to more than 5 cents, some drivers will start to leave.
In formulating a pay package, remember that every year your drivers are with you, the rate of pay they can command in the market goes up. Do not make them go elsewhere to get a raise.

Bonuses
A fundamental truth of the trucking industry is that most carriers overpay their poor drivers and underpay their good ones. For that reason, many carriers use bonus plans to reward good performance.

While bonus programs make perfect sense, few carriers have found they achieve their intended purpose. Drivers treat all bonus programs with suspicion. A recruiter for a carrier with a significant bonus program must convince drivers that the carrier is a good place to work, and that the bonus program is obtainable. That is a tall order.

In addition, bonus programs can become an underlying source of tension with drivers. When the bonus represents a significant amount of pay, failing to make the bonus becomes a major issue. No matter how fair the plan, few drivers blame themselves for not qualifying for a bonus. In their minds, either the plan is unobtainable or someone in the company, usually a dispatcher, prevented them from getting a bonus.

As a result, over the past few years many carriers have scrapped major bonus plans in favor of mileage pay. Most still retain a small bonus program to encourage driver performance. The payout generally ranges between 1 to 2 cents a mile.

While the table above categorizes bonuses in terms of safety (no accidents), performance (no service failures), fuel efficiency (mpg) and productivity (miles per month), most plans combine the different elements. For example, to achieve a safety bonus, a driver must operate accident free and drive a certain number of miles for the bonus period.

Whether bonuses of 1 to 2 cents a mile influence driver performance is debatable. Any influence may be as much due to the recognition that comes from achieving a bonus as the actual amount.

Other pay
The “other pay” category (described in the table below) is among the most important in terms of driver retention. One of the hottest issues among drivers is who gets assigned what load. While most loads pay the same rate per mile, there can be vast differences in the time and effort required.

If a driver is assigned a load that requires him to spend eight hours unloading the entire trailer, that driver will make on the average $68, or about $8 per hour. If a driver is assigned a load to a bad backhaul area, he may have to sit for a day before getting reloaded. He may get paid for a layover, $45 average, which will just cover his meal expenses. Is it any wonder that a driver gets hot over such load assignments?

In the old days of trucking, drivers were expected to take the good loads with the bad ones. Now drivers complain when they are assigned bad loads. Often this leads to confrontations with dispatchers. The dispatcher may try to placate drivers by promising the next load will be better. But if the next load doesn’t meet the driver’s expectations, the dispatcher becomes a liar. It is a no-win confrontation.

The problem is that many trucking companies don’t pay a satisfactory rate for non-driving work. For example, if you pay a driver $120 for an eight-hour hand unload – $15 an hour – most drivers, although not all, will complain less about unloading. If you pay $120 for a layover – the equivalent of driving 400 miles at 30 cents a mile – drivers won’t be as reluctant to go into areas where a layover is likely to occur.

More and more carriers are moving in this direction. For example, 41 percent of carriers pay drivers for loads picking up or delivering in New York City. Such practices help reduce the tension between dispatch and drivers. But even at better rates of pay, not every driver will be satisfied with the loads he is assigned. Some do not want to or can’t unload trailers. Others won’t go to New York City. If extra pay can help drivers tolerate such loads, it becomes easier to accommodate the needs of all drivers.

Vacation and holidays
Many carriers offer new drivers a week of vacation pay (as shown on the previous page). Most tie this amount to the driver’s average weekly earnings. Only half of the carriers offer holiday pay. Those that do pay a flat amount, on average $76.

Vacation pay is a benefit carriers must offer to be competitive in the marketplace. Conversely, less than one half of carriers elect not to pay for holidays. One carrier raised driving wages at the expense of eliminating all holidays. At first, the move was popular with senior drivers, but within six months they started complaining about not being paid for holidays. Turnover among senior drivers increased.

If you offer paid holidays to office staff and mechanics, you should do the same for drivers. Not doing so tells drivers they are second-class citizens in your company.

Orientation and recruiting bonuses
Charging drivers for attending orientation classes and making them pay for their own food and lodging is going the way of cabover tractors (as shown on the previous page). Your goal is to make it easy for a driver to join your company. Asking a driver to come up with the money for orientation creates a huge obstacle. Certainly, a carrier can advance the driver the money. But paying back that advance reduces the driver’s first few paychecks. If he doesn’t have enough money to pay the bills, he will question why he ever joined your company.

Nearly two-thirds of carriers pay drivers to attend orientation. A quarter of the carriers surveyed pay a sign-on bonus; some even pay both.

By offering generous orientation pay or sign-on bonuses, you risk attracting drivers only interested in collecting this money. That’s why most carriers attach some strings to the money.

The first 30 days of a driver’s employment is critical to retaining that driver. Ensuring that enough money is in the first few paychecks eliminates most driver anxiety. Because you would pay non-driving employees to sit through a training class, offering orientation pay helps eliminate the perception that your company treats drivers as second-class citizens.

Most carriers say that they find their best drivers through referral, but few report that increasing the size of the bonus or offering special rewards makes much of an impact. On the other hand, while offering large sign-on bonuses can create the appearance of desperation among drivers, it will get the phone ringing.

Insurance and 401(k)
In their efforts to attract long-term drivers, most carriers offer benefits, such as life and health insurance or retirement plans (shown in the table above).

Many small carriers hesitate to establish benefits such as a 401(k) plan. In fact, of the 25 percent of carriers surveyed that do not offer a 401(k) plan, most are small carriers. Often small companies worry about the complexity of administering such a plan.

But offering a 401(k) plan tells drivers and office staff that you are thinking long term. While offering a plan won’t make the phones ring, it can help persuade a 50-year-old driver who’s worried about retirement to stay with your company.

Rider programs
Whether you like them or not, rider programs are here to stay. Close to 100 percent of all carriers surveyed offer them. But it can be hard to police those who travel with drivers. In fact, most unauthorized riders are discovered after a traffic accident. By then, it may be too late.

Having a rider program lets you exercise some control over who is in the truck and for how long. Rider programs are becoming increasingly liberal. A few years ago, most allowed only family members. Now, close to 80 percent allow anyone who is approved. Instead of being restricted to the summer months, most programs are year-round.

Changing a pay package
More than 20 percent of the carriers surveyed in the National Survey of Driver Wages report a major pay package change every three months. Most carriers will make a change at least once a year.

Making a change can lead to unintended consequences. You may think current and prospective drivers will perceive a change positively, and the exact opposite occurs. Here are some hard-won lessons:

• Bucking the market
  One carrier went against the trend of scrapping bonus programs. Instead, it lowered mileage pay by 2 cents a mile while increasing potential bonus pay by 5 cents. Turnover skyrocketed to more than 200 percent.
• Not meeting expectations
  Word got out at one carrier that it was planning to increase the maximum pay rate for senior drivers. When the plan was announced, it did not match what the rumor mill predicted. Several senior drivers quit.

When you must update your pay package, try to avoid radical changes. Some carriers who want to make a major change offer their drivers a choice of pay packages, the old or the new. Some even calculate pay under both packages and pay drivers the higher of the two. The purpose is to minimize drivers’ fear that the pay change will take money out of their pockets.

In Summary
The wage and benefit package your company offers dictates what type of drivers you will attract. It’s also an indication of how well your company treats its drivers. A well-designed package should help your company compete with other carriers, pay drivers for all the work they perform and make it easy for qualified drivers to come to work for you. It should also help you retain your senior-level drivers. Various types of bonuses, vacation and holiday pay, retirement plans and rider programs can all be part of a successful package.