Trucking companies across the globe have been facing significant challenges in recent years, including economic disruption from a global pandemic, supply chain issues, material and labor shortages, and rising costs of fuel and wages. Finding and retaining high-quality CDL drivers and other trucking professionals is challenging with stiff competition and a highly competitive labor market.
Due to inflation (which has risen over 9% in the last year) and the rising cost of living, drivers are continuously looking to keep their salaries on par with industry standards. Unless companies can proactively keep their wages and compensation packages competitive, they risk losing their workforce to competitors or other industries. One of the critical approaches to combat this rapidly changing environment and address retention issues is conducting regular compensation analyses to ensure compensation is aligned with the current market conditions.
What is a Compensation Analysis?
Employees use many factors when selecting an employer, including pay, working conditions, technology, culture, company leadership, and market reputation. Most importantly, workers want to be paid fairly and appropriately for their duties. Companies must understand how their compensation packages align with the market and their competition if they want to attract and retain[1] the best talent.
A compensation analysis allows companies to thoroughly evaluate their compensation packages and how they align with the current state of the market and industry. During a comprehensive compensation analysis, companies will examine their current pay practices, how they compare to their competitors and the market, and make adjustments to improve employee satisfaction. It’s important to note that a good quality compensation analysis will expand beyond just pay. Other compensation elements such as health insurance, paid time off, bonuses, pensions, stock options, and other perks should be included in the analysis.
Benefits of Performing a Compensation Analysis
- Turnover Reduction – The trucking industry provides a highly competitive marketplace for talent. Truck drivers constantly look for opportunities that offer better pay, working hours, and benefits. Companies with large fleets can see turnover rates that reach 90 percent. Turnover is costly. A study by Upper Great Plains Transportation Institute found that the average cost to replace a single driver is over $8,000. By providing competitive compensation packages, companies can drive down turnover and, ultimately, the costs associated with turnover.
- Reduce the Impact of Driver Shortages – The American Trucking Association (ATA) estimates that the trucking industry could face a shortage of up to 160,000 drivers by 2030. Companies with the most competitive compensation packages will have less difficulty filling vacant roles.
- Attracting Top Talent – Being the best often requires hiring the best people. Drivers and other trucking industry professionals who are top performers will be able to secure the best compensation packages. Companies that fail to be competitive in terms of pay and benefits will struggle to attract the talent they need to be successful.
- Strategic Financial Planning – The American Transportation Institute has found that driver wages and benefits make up 42 percent of the cost of operating a single truck. Being able to anticipate trends and increases in the cost of living is critical to creating a comprehensive financial plan.
- Level-Setting Resource Needs – A company’s talent and staffing needs can change over time. Tasks that once required experienced professionals may be downgraded to entry-level positions due to advances in technology or process changes. A compensation analysis lets the company understand what resources they have and are vital to keeping the company operating. These changes could result in significant cost savings.
Risks and Pitfalls When Performing a Compensation Analysis
- Too Much Focus on Pay – Pay is a significant component of a compensation plan. However, too many companies forget to focus on other important benefits to employees. Despite having pay equal to or higher than their competitors, companies may miss the mark in terms of total compensation. A comprehensive compensation analysis must include all financial and non-financial benefits of working for the company.
- Poor or Outdated Data – The quality of data used during a compensation analysis will determine the quality of the results. Pay ranges relevant just two years ago will no longer be valid. Also, factors such as cost of living, economic conditions, and labor availability can shift dramatically over time.
- Not Revisiting Compensation Regularly – Since pay ranges and employee expectations change over time, companies must have a plan to regularly review and address the compensation methodology. Falling behind the competition can have lasting impacts on your company’s reputation in the labor market.
- Failure to Engage Managers – A successful compensation revamp requires buy-in and participation from managers within the organization. They will be the ones who ultimately ensure the company is paying employees within the new compensation guidelines.
How to Implement a Successful Compensation Analysis
1. Set Goals for Your Organization
Every company has different needs and business objectives. First, you must understand what you are trying to accomplish with your compensation analysis. Are you looking to be more competitive in the job market? Do you want to reduce turnover? Do you want to increase employee productivity and happiness? By answering these questions, you’ll be able to determine if the goals of the compensation analysis were achieved when the analysis is complete.
In addition to goals, the company should assign someone to spearhead the initiative. While a compensation analysis may require several resources, one person should ultimately be accountable for its success. This person can be an internal HR representative, an outside management consultant, or a 3rd party compensation analyst.
2. Benchmark Your Existing Compensation Methodology
Most companies have an existing compensation methodology. This will be the starting point for the compensation analysis. By organizing and gathering the details of your current compensation plan, you can quickly see where the company can be more competitive.
- Examine Existing Payroll Data – The payroll department can usually provide this information. You can group similar positions to identify the approximate ranges for the various positions within the company. Employees far outside the typical ranges (both high and low) should be noted. This could be an indicator of discriminatory compensation practices.
- Catalog Benefits and Other Perks – Make a list of all additional benefits and their approximate monetary value. It’s also essential to identify the benefits available to which employees and their utilization rate. Ones that are rarely used could be an indication that employees don’t care about this specific benefit.
- Review Compensation Processes – Next, document the processes that determine how employees are compensated. For example, who determines the employee’s pay rate? Are there existing pay ranges, or is pay at the manager’s discretion? How often are raises and market adjustments considered? How is overtime allocated and monitored?
- Evaluate Job Descriptions and Responsibilities – The initial review of internal compensation processes should include a thorough evaluation of each job description. The responsibilities of each employee should be representative of their job title. These job descriptions will also be helpful when you start comparing your compensation to other companies in the industry.
- Get Employee Feedback – Employee feedback can be crucial to understanding if existing employees are happy with their compensation packages and getting recommendations on improving. This can be done through employee satisfaction surveys. You can also gain insight by looking at metrics such as turnover rates by position or department.
3. Gather Market and Industry Data
Once you have all of the information related to the compensation methodology for the company, you’ll need to see how it compares to market and industry averages. Several factors can lead to variations in compensation, including location, company size, industry niche (long-haul, delivery, refrigeration, etc.), and unionization.
Many high-quality data sources include government websites, industry research, industry experts, and economic forecasts. While not a comprehensive list, the following sources are highly recommended as a starting point.
- Job Boards – Job boards such as Monster, Indeed, Career Builder, and Glass Door can provide a treasure trove of information about your competitors. Often, these companies list details about their compensation and benefits packages within job postings. You can also use the job postings to compare to your existing job descriptions to ensure you are comparing apples-to-apples.
- Industry Data – Industry research, statistics, and white papers are often available through various research and consulting firms. In some cases, you may be able to hire one of these firms to conduct customized research for your needs.
- Employment Market Data – External factors may influence wages and unemployment in your area. The Bureau of Labor Statistics is a great place to find current unemployment rates and determine the local cost of living changes. Low unemployment rates could limit the resources available, putting pressure on companies to be more competitive with their compensation.
All data should be carefully validated to ensure it is high-quality and accurate. Current data is more likely to be exact since pay ranges and benefit offerings change over time. It’s best to select sources that are no more than a year old. Old data could result in making incorrect assumptions about your company’s compensation. Also, try to choose data from organizations and environments that are similar to your company.
It’s important to note that some data on the surface may be misleading or cause you to make poor decisions. A great example of this is the concept of Survivorship Bias. During World War II, statistician Abraham Wald was tasked with calculating ways to reduce the number of bombers that were shot down during the battle. He carefully noted the location of each bullet hole in the returning planes. While it may seem logical to add more armor to these areas, Wald realized that the areas with bullet holes weren’t as critical to protecting since the planes clearly were able to return with damage to those areas. For this reason, Wald recommended reinforcing areas the non-damaged areas of the airplane resulting in fewer bombers being shot down.
Related Article 1: How To Analyze A Competitor’s Job Description And Compensation
Related Article 2: How Trucking Companies Can Get Creative With Compensation Packages
4. Update Your Company’s Compensation Model
Using the internal and external data that you collected, your compensation analysis team can start making recommendations to update your existing compensation model to align with your goals and the current market conditions. This may include updating pay ranges, expanding benefits, or adding new perks.
A little creativity can go a long way. Sometimes, employees select a company that has unique perks compared to their competitors, such as more vacation time or parental leave. You can even offer incentives for employees who stay with the company for a certain amount of time.
Updates should also include updating job descriptions and the various policies that influence compensation.
5. Provide Training for Managers
Before rolling out the new compensation plan to your workforce, you need to provide training to your managers. You want your managers to understand why compensation is essential and how to follow any new guidelines put in place. This can also be an opportunity to get feedback from your managers in order to make any final adjustments.
6. Communicate Changes to Employees
The team should plan an official communication plan and launch date for the new compensation plan. It’s up to the company how much information they want to share regarding the changes. Most importantly, companies should stress the benefits of the compensation plan changes to employees. For example, making it clear that newly established pay ranges will ensure that all employees are paid fairly and transparently.
Related Article: 5 Ways To Reduce Turnover With Compensation Analysis
7. Create a Schedule to Regularly Conduct a Compensation Analysis
Since market conditions are constantly changing, companies should be prepared to review their compensation packages on a regular basis. The experts at Inflection Poynt recommend that companies conduct a new analysis quarterly. This will ensure that your company isn’t falling behind the market and competitors.
Quarterly reviews allow company management to identify trends in the local market and proactively develop plans to mitigate any issues that arise. For example, if the market is seeing a marked decline in the number of available CDL drivers in the area, the company can plan for how to address an upcoming shortage. Making minor adjustments to your compensation plan throughout the year is much easier to maintain than significant overhauls every few years.[2]
Related Article: Why It’s Critical to Conduct Quarterly Compensation Analysis for CDL Drivers
Leverage Industry-Leading Compensation Analytics
The team at [3] Inflection Poynt is dedicated to helping trucking companies better understand the factors that influence employee retention and how to attract great CDL drivers. Our market analytic tool leverages the latest data to identify industry trends and recommend compensation based on current pay conditions, costs of living, and job market competition. Contact us today to see how your organization can benefit from our innovative compensation analysis platform.
Bonus: Avoiding the Most Common Data Pitfalls
Data is the most powerful component of successful compensation analysis. However, it can also lead to some misleading results if you are not careful.
- If You Torture the Data Long Enough; It Will Confess Anything – Data can easily be manipulated. It’s possible to dig through enough data to find correlations or confirm assumptions that aren’t necessarily true. This is referred to as Data Dredging.
- Garbage In, Garbage Out (or GIGO) – Refers to a concept where bad data input can result in bad results. For example, if you select driver wage data that is a decade old, your compensation analysis will not be accurate or competitive in today’s market.
- There Are Always White and Black Sheep – Having a wide range of data can help avoid making decisions based on an outlier. For example, you might find a competitor that is hiring CDL drivers at a specific pay rate. Without gathering additional information beyond this single data point, you might jump to the conclusion (or make a “faulty generalization”) that this is reflective of all companies. It’s better to make sure that you have a reasonable number of data points to quickly identify information that falls outside of the normal range.
- If You Ask All Data Points for Their Opinion, Some Will Agree with You – If you try hard enough, you can find data to agree with just about any assumption (also referred to as Confirmation Bias). It’s also essential to make sure that you don’t change or cherry-pick data to get a particular result. Unfortunately, cherry-picking data can lead to excluding or disregarding important information.[4] [5]
