Incentives: Incentive programs mean more than extra bucks
June 1, 2002
A driver incentive program (DIP) could be your company's competitive edge in today's tight-margin trucking biz. And with a benefit-cost ratio as high as 2:1 or even 3:1, using incentives to improve sa...
A driver incentive program (DIP) could be your company’s competitive edge in today’s tight-margin trucking biz. And with a benefit-cost ratio as high as 2:1 or even 3:1, using incentives to improve safety, fuel economy or another productivity area can be a profitable venture.
Already have a DIP in place but not sure if it’s working? Persistence, evaluation and fine-tuning along with other techniques have helped companies ensure the success of their programs.
“Driver incentive programs are a positive way to get employees and drivers to increase productivity or reduce costs,” says Ray Barton of Ray Barton Associates. And the cost of development, implementation and bonuses doesn’t have to be high.
There’s another advantage that companies using incentive programs often notice – improved morale leading to increased driver retention. This is good news in an industry where retention is a chronic problem and some companies have a 50 to 75 per cent annual driver turnover rate.
“Many companies ignore this area,” says Barton. And they do so at their own peril – replacing an experienced driver can run $5,000 to $8,000 in training and productivity costs. Or even higher if the company is specialized.
“Driver incentive programs are usually brought in to address a specific area,” says Barton. Usually it’s an area key to the individual company’s success.
What corrective action will help improve an area or situation at your company?
The use of safety incentives – the most commonly used measure – is growing. Sixty per cent of companies with 50 or fewer power units already have a program in place, says the Canada Safety Council. (Programs typically apply to both owner/operators and company drivers.)
Productivity incentives are already being used by 40 per cent of companies – in areas like customer service, on-time delivery, skills training and reduction of cargo damage.
Strangely, industry expense number one – namely fuel – was one of the less frequently used measures, according to the PMTC Driver Compensation 2000 survey of 52 private fleets.
But poor driving habits can send up to 35 per cent more fuel up in smoke, compared to fuel-efficient driving techniques, according to The Technology and Maintenance Council of the American Trucking Associations. And while 70 per cent of Canadian fleets delivered some form of driver training in fuel efficiency, only 24 per cent had driver incentive programs according to FleetSmart’s Fuel Efficiency Benchmarking Study.
A properly designed fuel incentive program can improve fuel economy by 0.4 to 0.7 mpg, depending on the degree of efficiency your company has already achieved, explains Barton.
This could mean annual savings of about $2,100 to $3,670 per truck on fuel alone. So a 10 truck fleet could save nearly $37,000 per year.
It obviously pays as well to reduce the frequency and severity of minor collisions.
“Benefit-cost ratios are usually greater than two to one, (therefore) companies can make money on these accident-reduction efforts,” explains the CSC study Incentive Programs for Enhancing Truck Safety and Productivity: A Canadian Perspective. “The effectiveness of incentive programs in reducing accidents is often remarkably high (and) reductions of 80 per cent or more have been reported.”
According to the council’s manual How to Implement Incentive Programs for Safety and Productivity: Guidelines for Transport Fleets, “Companies who take preventive action on minor, non-injury incidents have fewer collisions with minor injuries, and fewer major crashes with severe injuries.”
Improved safety could save your company more than the direct costs associated with an accident: cargo damage, medical costs, property damage, injuries and lost time at work. Consider the hidden costs of an accident your company stands to avoid: lost clients, lost sales, damaged equipment downtime and poor public relations.
One company’s lower accident totals netted an insurance rebate greater than the bonus money paid to their drivers.
Another fleet manager says, “If the program saves us one rollover a year, it’s worth it.”
“A safety incentive program may also have the side effect of savings in fuel and maintenance costs,” says the CSC. “Even small improvements can justify the cost of the program. Consider the cost savings associated with even a one per cent improvement in fuel efficiency … against the cost of the program.”
OK, so the benefits sound good. But do incentive programs work?
Talking it out
“Yes, if you do them right,” says Barton who has been researching DIPs for more than three years.
Companies who jumped on the bandwagon early had little to guide them, and some were disappointed with results from the programs. “Typically they (have relied) on their own judgment and word-of-mouth from industry contacts. This lack of reference material means that the programs developed often have problems that lead to their demise,” concluded the CSC study.
Specific, detailed Canadian case studies can serve as a tool to help a company fine-tune or re-ignite their existing programs – or even develop one from scratch.
CSC’s manual helps with, “How to develop, administer and evaluate incentive programs … based on the best practices of trucking companies with successful programs.”
Barton says it’s essential to have a clear system of measurement to provide the data to manage the program. “How can I reduce idling? Am I changing gears too fast? These numbers become important.
“You need to make the numbers available and review them with the drivers so they can make adjustments,” like improving driving technique to improve fuel economy.
“In all likelihood, you won’t get 100 per cent participation in (your) program, but that’s OK because you’ll benefit just from the other drivers.”
And the audit trail required by an incentive program “will also identify the poor performers … drivers you have to let go, or who need extra training.”
Drivers who don’t respond to an incentive program are a rare exception, and that tends to happen more at the beginning, he adds.
“But once they see others getting a cheque … that’s part of the peer pressure.”
Good communication – both internally and between drivers and management – is prevalent among companies with successful programs.
“These companies indicated they often did not have enough communication when they first started their programs, which led to difficulties that had to be addressed,” reported the CSC study.
Effective communication can also play a significant role in improving employee retention.
“Ongoing communication builds morale and gives employees a sense of belonging,” says the CSC.
Although an employee manual is the basis for internal communication, it’s important to keep the message fresh and remind participants frequently about the program.
An office bulletin board is helpful, and mail directed to an employee’s home can help get spouses involved.
Patience plus persistence were also revealed as key ingredients for success. “Companies reported a time lag of up to one year or more from introduction of the program to actual attainment of benefits. Apparently, real benefits were typically seen after two or three payments of bonuses were received and drivers saw tangible benefits and modified their behavior accordingly … These companies also noted the need to constantly refine and update the programs.”
The CSC also reported companies with a wide range of safety initiatives – like keeping equipment in top condition and enforcing speed limits – reported greater success with their safety incentive programs.
The CSC concludes, “(safety) incentive programs strengthen the motivation to be safe and will result in improved safety … if combined with proper tools and knowledge.”
Rewards can thus be effective by positively increasing the desire to achieve an outcome – i.e. a cash payment for x distance of accident-free driving.
This contrasts with a punishment approach.
“Punishment creates a dysfunctional organizational climate: resentment, uncooperativeness, antagonism, sabotage. Mor
eover, some people vehemently resist any action taken by authorities that they view as an infringement of their personal independence and freedom of choice. As a result, the very behavior that was to be prevented may in fact be stimulated.”
Remember the objective is to keep the driver motivated to improve, says the CSC manual. A successful system of incentives/rewards will be positive and encouraging.
So what is the best incentive?
“If you ask drivers what they want, they’ll say cash, but it’s nice for them to get the recognition, too,” says Barton, noting that companies using a combination of cash and non-cash incentives are the happiest with their programs. Drivers interviewed at a major truck stop for the CSC study were unanimous that cash is the best form of bonus and, “(safety) incentive programs were, if managed properly, effective and motivate drivers to be extra careful.”
While the most common payment cycle is every three to four months, the ideal payment frequency may depend on your organization’s objectives. Monthly payments provide a frequent reinforcement for drivers, whereas greater intervals reduce the administrative work and drivers see a bigger cheque. Just before Christmas is a common time for bonus payment on an annual cycle.
The timing of your company’s bonus payments could provide an incentive for drivers to stay on staff through a payment period in order to receive the bonus.
Remember the objective is to keep the driver motivated to improve.
An effective evaluation strategy will help your program evolve, and continue to keep drivers motivated to participate. The simplest evaluation is a ‘before and after’ comparison of costs and benefits.
“It takes time for the program to become effective so the longer the time frame used, the better,” says the CSC. “The evaluation should only use data collected after the program has become fully effective, normally from six to 12 months after implementation.”
If your company is considering a new program or thinking about rekindling one, you may want to ask a couple of questions first. Why is the program being introduced? Are these the right reasons?
If not, the plug could get pulled as soon as a slight improvement ends a given operational crisis.
The CSC manual How to Implement Incentive Programs for Safety and Productivity: Guidelines for Transport Fleets is available for free download from the CSC at www.safety-council.org or from Transport Canada at www.tc.gc.ca, the final report should be available in April 2002.
Marchand can be contacted by e-mail: email@example.com or 613-739-1535 ext. 226. Barton can be contacted at 613-837-0206.