Driver Bonus Program

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InTheMiddleMediumCreating a driver bonus program is a popular way for managers to motivate specific driver behaviors.  The programs come in as many varieties as you can imagine.  Over the years I’ve helped design, implement, maintain, and measure about ten different programs.  I’ve also been involved with defending two different law suits related to driver bonus programs.  More on that in the warning below.

For now, I’ll offer a simple explanation of why companies use driver bonus programs, followed by the most popular types of programs, some of the disadvantages, and then my final thoughts.

Why a bonus program?

Increasing profit is the main reason a company implements a driver bonus program.  The related reasons are to lower turnover and training costs, improve safety, make more turns instead of buying additional trucks, and to increase pay based on performance subsequently preventing your base pay from growing out of control.

The key to an effective bonus program is to answer this question:

What you are trying to accomplish?

This is an deceptively complex question and the answer is critical to creating the right type of driver bonus program for your organization.  To answer it you’ll need to ask more questions, though, such as:

  • What problem are you trying to solve?
  • What behavior are you trying to encourage or discourage?
  • What goal isn’t being reached?
  • What part of the P&L do you need to stretch or clean up first?
  • Is the information you need to forecast and measure the impact of a program readily available?
  • Can you measure the cost of designing, implementing, and maintaining a bonus program? 

Once you understand what you want you’ll be able to design the type of bonus system you need to accomplish your goal.

Types of Driver Bonus Programs

I’ll group the driver bonus programs into a few broad categories and discuss the general advantages of each.  The disadvantages follow this section.  We’ll look at programs based on loads, gain management and safety.

Load Bonus

The load bonus has many forms.  It can be designed to calculate daily, weekly, monthly…whatever time period works for you.  Considerations include a hurdle rate, sliding scale, pour types, and market segment.

For example, if you are in a majority commercial market it will probably make sense to set the hurdle rate at 3 loads per day.  Once the third load is completed all other loads receive the bonus pay.

You may want to use a sliding scale for the calculation to encourage drivers to keep turning.  The sliding scale may include an additional calculation based on the amount hauled per load.  For example, on a driver’s fourth load, the bonus may be $1 per load or $0.10 per yard.  The fifth load may be $1.50 or $0.15 per yard.  Lastly, you may have to create exceptions in the form of guaranteed bonus pay for crappy job types (e.g., block fill, gunite, fence posts, etc.).

To summarize, our daily driver bonus program looks like this:

  • Loads 1 – 3: No bonus
  • Load 4: $0.10 per yard
  • Load 5: $0.15 per yard
  • Load 6+: $0.20 per yard
  • Crappy jobs: Additional $1.50 per hour
I view RTT (round trip time) and YMH (yards per man hour) based bonuses as variations of a load bonus.  All three types are based on the driver’s performance and the emphasis is to keep the truck turning.

Gain Management

Basically, all employees work together in teams to improve operations and share in the company’s profit realized from the operational improvements.

The employee teams, with management guidance, create smarter work processes in order to improve performance and lower waste.  The efforts are tracked and reported to everyone and a portion of the gain from these efforts is shared with all employees in the form of a gain share payout.  This can be done monthly, quarterly, or annually.

Gain management programs require extreme transparency and a culture of trust.  I’ve seen them successfully used in all types of manufacturing environments except ready mix.  And I tried to make it work in ready mix.  We tried.  It was a short-lived disaster.

Safety

I’m familiar with two types of safety bonus programs.  The first pays incentives based on the group (plant, division, region) being accident free from reportable incidents for a set period of time.  The other type tracks individual drivers and adjusts each driver’s annual pay with a separate increase for maintaining a safe environment.

General Disadvantages to Driver Bonus Programs

Drivers will game the system.  Plan to overhaul it every 24 months.

Managing the results usually requires data research, analysis, forecasting and new measurement systems.  There can be significant costs to creating and managing the process.

Drivers don’t control the entire operational process and are held responsible for the actions of others.  This may become an adversarial environment if vendors, contractors, batchers, or the general public stands in the way of a driver reaching a bonus.

Safety bonuses may create a hostile work environment if peer pressure prevents someone from reporting a real incident.  This may lead to litigation against the company.

WARNING!
I’ve been involved with defending two different law suits related to driver bonuses.  The law suits were against completely different ready mix companies.  In both cases the drivers organized independent of union involvement.  Defending the cases was extremely expensive and had significant negative impact on dispatch and payroll.  I don’t view either company as victorious even though neither lost their respective case.  The settlements weren’t clean and the aftermath lasted years.

FYI, I’m not an attorney.  My responsibility was to oversee the data extraction and analysis on behalf of the company in both cases. 

Disclaimer

I’m against bonus programs.

Bonus programs are usually short lived motivational tools requiring more effort than anticipated for results lower than predicted.

Short term positive results are usually paid for with longterm negative employee morale.  Bonus systems are typically a substitute for good management practices.  Develop your managers and the employees will not need bonuses for motivation.

Alternate Way

Actively manage your drivers.   Explain what you need and why it’s important.  Connect the dots for them.  Make a driver P&L that take costs to the individual driver.  Let each driver see his impact and the group’s impact on the bottom line.  Ask drivers if they see ways to improve and let them have ownership in making the necessary changes.  Allow your drivers input into how to achieve what you need to accomplish.

2 Comments for “Driver Bonus Program”

Randy Johns

says:

Nice overview of driver incentive programs. You did mention safety bonuses. You said that you are against bonus programs. Does that include safety incentives? I personally am against safety bonuses as safety should be a pillar of an organization and have always wondered if we should provide incentives for such a core issue. what is your take on safety-based bonuses/incentives?

KR

says:

I, too, disagree with the safety bonus. I’ve seen them abused by peers going as far to threaten people if any safety issues were reported because the bonus would decrease. It’s an extreme example, but we can’t set up systems that may cause this type of behavior.

This is easy to say but difficult to do: hire good people and pay them very well. They’ll know they are appreciated, generally rise to the occasion, and don’t feel the need to constantly look for a better opportunity. Money isn’t the only factor to finding and keeping good people, but for hourly-based workers, it’s usually one of the biggest considerations.

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