Friday, February 6, 2015

The case for hourly driver pay

Drivers prefer a percentage of revenue to mileage or hourly pay.

That’s what a recent study claims. The survey said to be of 4,000 drivers doesn’t break out owner-operator and company drivers. Still, if it’s even partially true, carrier and logistics execs should be slapping each other on the back and heading out to celebrate with a round of golf.

Sure, most owner-operators can turn down loads if the revenue, percentage, mileage or whatever, doesn’t cover costs and (hopefully) a bit of profit. But what about company drivers who cannot pick and choose?

In a truly just world, company driver pay would be much more substantial, of course; it would also be by the hour.

Driver pay schemes are all about incentives. Some incentives are for drivers and some are for brokers, shippers, and consignees. Carrier execs understand incentives very well.

A percentage split looks good on paper to some drivers, at least according to that survey. But a defined slice of the revenue is often a gift to the carrier, whose back office costs are constant and predictable. As a driver, you’re on the hook for the variables – every traffic light, storm delay, construction backup, etc. – the costs of actually providing the service.

Because time is money, those costs rise with delays. In traffic, you log hours behind the wheel. When you’re waiting, you’re probably logging on-duty, not-driving hours and that costs you driving hours and the opportunity to earn.

Meanwhile, the carrier or broker quoting the load has a built-in incentive to low-ball a rate. It might be to bolster a lane, to meet a quota, or to do a customer a favor. Why not? The most expensive part of the transaction, your haul, won’t cost him a dime more. Do all carriers do that? No, but the incentive couldn’t be more clear. Percentage pay places the power – and the most predictable chunk of the revenue – totally in their hands and not yours.

Mileage pay isn’t much better. Sure, it represents the actual length of the haul, but not variables. The carrier may not have an incentive to cut rates in this case, but neither will your settlement cover any added costs. Yes, some companies pay limited amounts for delay time, etc. But for the most part, when you wait or sit in traffic, your opportunity to earn ticks away.

And then there’s hourly pay. Here the incentives are turned around. It’s the carrier or broker who has to worry about delays. As a company driver paid hourly, you don’t worry about the cost of idling in traffic or waiting for a door assignment. You’re paid for the time it takes to properly inspect your truck and to do whatever paperwork is required. You have every incentive to drive carefully and observe all the rules.

Of course hourly pay only works if the basic numbers are high enough. If at the end of a trip, you still can’t make your car payment, the form of the pay matters little.

But if the numbers enable you to support a family in decent fashion, the form of pay matters a lot. Mileage or percentage pay incentivizes you to run hard and cut corners. Hourly pay incentivizes carriers to minimize delays, to turn down bad freight, and to keep you rolling.

Carrier execs and their associations totally understand the hourly pay incentives and so deny them vehemently. Hourly pay means your hassles become theirs, and they don’t like that at all.

There’s more to consider where hourly pay is concerned, from trucking’s exemption from the Fair Labor Standards Act to the impact widespread hourly pay might have across the industry. But those issues will have to wait for another blog.