Variable Pay Implementation Considerations

Tuesday, August 17, 2010

We have designed our variable pay plan for our Truck Driver, now we need to implement it. While it is possible to design a plan for a single incumbent position, it more common to have a number of incumenbets at various stages in their careers with the employer. However, for illustrative purposes, it will be helpful to focus on our one driver.

Our plan design calls for a number of risk factors to be in play with our driver:

• 90% of all stops on time

• No at fault accidents

• No more than 3 unexcused absences

• Customer satisfaction rating of “Satisfactory”

Our plan also calls for us to pay out any earned variable pay monthly. 

Now let’s look at each of these factors in detail:

90% of all stops on time

If we are going to measure against this standard, we are going to have to track the driver’s delivery times over the course of the month and be able to relate it to the scheduled times. In addition, to be considered “on time” we must define what that means. Is it plus or minus 5 minutes, 10 minutes or some other allowance? If we make it too small, it becomes unreasonable and may introduce an unsafe driving situation as the driver speeds to their next stop. If we make it too large, we reduce any incentive to be on time. Finally, someone has to do the tracking; fortunately, there are GPS systems and vendors who will do this electronically for us.

No at fault accidents

If our driver is involved in an accident and they are issued a citation, we will consider them to be “at fault”. If however, they are later to be found not at fault, their performance records could be adjusted to reflect this change. We might also engage a vendor to track this information as well.  Furthermore, damage which occurs to the driver's truck must be relateable to the assigned driver's operation.  If the truck is damaged by someone other than the assigned driver, we will need to know that and not hold the assigned driver accountable.

No more than 3 unexcused absences, annually

What will be considered an “unexcused” absence? We may have a policy that says if the driver fails to call within one hour of the start of their shift that is considered an “unexcused” absence. Or that any absence for which the driver has no valid and substantiated reason, e.g., doctor’s note. Absences involving, funerals, hospitalization, planned vacations, and planned medical treatments would not be considered an “unexcused” absence. Our payroll system may be able to track this factor; otherwise, we will have to develop some method of tracking absences and missed time.

Customer satisfaction rating of “Satisfactory”

Our driver interacts with our customers on a daily basis; as such, the driver has the ability to influence the customer’s opinion of our products and services both positively and negatively. Not only do we as the employer want to know that our customers are satisfied, we want our driver to know that his actions and his customer interactions have the ability to affect him personally and financially. Assuming that we have a customer satisfaction survey and one that garners information on our driver, we want to track our customer’s perception of our driver’s performance. Since we are determining the driver’s variable pay on a monthly basis, we are going to have to measure customer satisfaction on a monthly basis. It might even be beneficial if a third party conducted the customer satisfaction survey. This could add creditability to the survey’s findings.

As you can see, implementation of even a relative simple plan requires some forethought and planning. This is one reason why we want to keep such plans as simple as possible. You can image a plan with a dozen on more risk factors involved and how an employer could manage to track, measure, and record keep a large number of factors.