Innovators: Paying for value

Barry McGrady, Floyd & Beasley’s vice president of IT, says drivers have become more interested in keeping track of and improving their revenue and performance since the company switched to a performance-based compensation plan.

Three years ago, Floyd & Beasley Transfer Co. began to offer a safety bonus to drivers with no accidents or incidents during a six-month period. However, a flaw soon became obvious: If a driver had a minor incident in one month, there was no incentive to be safe for the rest of the period.

“It was an all-or-nothing program,” says Barry McGrady, vice president of information technology, payroll and benefits for the 200-truck carrier based in Sycamore, Ala.

To address the problem, management implemented a scoring system to award drivers a percentage payout on the bonus, McGrady says. The percentage was calculated using a driver’s score divided by the maximum score possible for having no incidents and violations during the period.

This formula may not be groundbreaking, but it set the stage for Floyd & Beasley’s next move. Based on the experience with variable pay, the management team – including President Jeff McGrady, Chief Financial Officer Mark Payne and Barry McGrady – decided to try building a whole new driver compensation program that paid drivers differently based on performance. The goal was a system that:

  • Rewarded the highest producers without also rewarding the lowest;
  • Attracted strong performers;
  • Gave drivers an incentive to improve performance; and
  • Paid for itself.

A driver scorecard would be the foundation of such a program.

The first step was settling on a single, standard formula for ranking drivers by their performance and contribution to the company. For the sake of simplicity, management decided on four categories of scoring “buckets”: average weekly revenue, fuel compliance percentage, accident and incident ratio, and violations ratio. Floyd & Beasley then identified the source of the data for each bucket and the weight to give each in the overall compensation formula. The final step was to develop a pay scale around the scorecard system. Every six months, drivers would be reevaluated on that scale, giving them a chance to raise – or lower – their pay rate.

Weekly revenue per driver comes directly from a report in the company’s enterprise fleet management system. For each six-month measurement period, management sets a goal for what average weekly revenue should be. “We don’t set the goal low – we set it high where we want it to be,” McGrady says. A driver’s score is calculated by multiplying the percent of the goal the driver obtained for the period by 500.

Fuel compliance percentage is obtained from a fuel optimization program the company uses. The program automatically tracks the number of gallons a driver purchases in network, and compares it to the optimal number of gallons calculated by the fuel optimizer to get a compliance percentage. This percentage is multiplied by 250 points to get a score.

Floyd & Beasley uses a homegrown safety application to assess driver safety and compliance. The formula compares miles run free of accidents/incidents and those run free of violations against the number of miles typically run in a period. The resulting ratio for accidents/incidents and for violations is then multiplied by 150 and 100, respectively.

The total possible score for all four buckets is 1,000 points, with pay scale breaks at four different levels. A driver who scores 925 or greater receives Level 1 pay; Level 2 pay is 825 to 924; Level 3 is 650 to 824; and anything below 650 is Level 4.

To manage the scorecard program, McGrady designed an application using Microsoft Excel that captures data from the different sources into four separate tabs, or worksheets. He designed each worksheet to calculate driver scores for each bucket. A fifth worksheet extracts pertinent data from each of the score buckets into one scoreboard.

Driving results
When Floyd & Beasley announced the program to drivers in July 2005, its current pay rate was equal to the pay rate established for Level 3, McGrady says. Each level represents 2 cents a mile, so drivers could receive a raise of 4 cents per mile by scoring at Level 1. On the other hand, drivers who scored at Level 4 faced a cut in pay of 2 cents per mile.

The overall driver reception to the new pay plan was very positive, McGrady says. Many drivers were interested in where they stood and anxious to make the extra effort to qualify for a raise in 2006, he says.

Before announcing the program, Floyd & Beasley already had been using the scorecard to measure performance for one month. “When we first started, we had more [drivers] at the bottom two levels than at the upper levels,” McGrady says.

The company launched the compensation plan in October 2005, giving drivers an initial three-month period to earn a score and set their compensation level for the first six months of 2006. After this initial period, performance in one six-month period sets the compensation for the next six months.

Newly hired drivers are assigned a level that managers believe is commensurate with his experience and work record. For drivers to qualify for a raise, drivers have to work for a minimum of two months prior to the start of a period.

After nearly one year of using the new compensation program, McGrady says the results have exceeded all expectations. Driver turnover remains far below the industry average in the 20 percent range. Revenue has increased and in-network fuel compliance has jumped from 55 to 92 percent. “That blew me away,” McGrady says. “I knew it would go up, but it has jumped to 92 percent consistently.”

McGrady also has noticed greater interest from drivers in the business, greater effort to improve their performance, and less bickering about pay. “What we found is that drivers are interested in keeping their performance high. They check with us to see ‘How is my revenue looking, and what is my performance?’ ”

The scorecard also has enabled management to be more proactive during each measurement period. Every two months, McGrady runs an “internal checkup” to look for trends in any category. “If we see a big decline, we’ll call that driver,” he says. “We manage by exception.”

Having a ranked list of drivers in a scoreboard also gives management a good starting point to analyze other areas of performance that are not included in the scoring system.

“We use [the scorecard] to manage the ones that are not scoring where we want them to be – that’s where we start digging,” McGrady says. “We not only look at the four areas, but we look at other areas such as miles per gallon, idle time, or start looking to see why revenue is so low. We might see they are idling 60 percent of the time, and not delivering loads on time. Or there might be a problem with a shipper delaying them.”

Since using the scorecard, more than 50 percent of drivers are now at Level 2 and higher, McGrady says. The system also has enabled the company to raise the pay rate by 4 cents per mile with minimal investment due to paybacks from fuel savings and increased revenue.

This significant increase in top pay, which is available to drivers at any level of experience or tenure after as little as two months employment, also is an effective recruiting tool, McGrady says. “For what it cost us to do a 4-cent raise for the people that qualify, we would have only been able to give everyone a 1-cent raise [without the program].”

Innovators profiles carriers and fleets that have found innovative ways to overcome trucking’s challenges.

If you know a carrier that has displayed innovation, contact Avery Vise at or (800) 633-5953.