Better Pay Alone Doesn't Retain Drivers, Heartland Finds

Heartland Express HTLD is learning that higher pay alone is not going to be enough to retain drivers.

In a presentation to the UBS Global Industrials and Transportation conference earlier this week, two executives from the company told the virtual gathering that while Heartland had increased pay, it was finding that other steps to address driver concerns — and not just another round of increases in the company's per-mile rate — were having a positive impact on retention.

In comments that at times echoed those told to FreightWaves in a recent interview with USA Truck, CFO Chris Strain said Heartland is learning that "some drivers are willing to take less in pay for the trade-off of being home every night." That has helped squeeze driver supply but also in the mix are other reasons frequently cited for the current code red level of difficulty in hiring drivers: lingering health concerns from the pandemic and the loss of drivers effectively kicked off the roads by their record in the federal Drug and Alcohol Clearinghouse. 

"We see this extending for quite some time," Strain said. "We have not yet seen the inflection point that says there is something here and drivers are starting to come back into the industry."

As Josh Helmich, the company's controller said in the presentation, the company has needed to get "creative." A "traditional" increase in pay last fall "didn't really move the needle," he said. But Heartland did dedicate itself to getting drivers home more frequently, and that has been a contributing factor in better retention levels.

But more radically, Heartland has started to move toward more guaranteed levels of compensation. "As long as the driver is doing what we ask them to do, we are going to guarantee a minimum pay level," Helmich said. They won't get that minimum compensation for doing anything, he said. "They still need to be available to run freight," Helmich said. If they are looking at a significantly diminished paycheck "through no fault of their own," Helmich said those paychecks will be adjusted to reach a minimum.

At its most extreme, drivers who got stuck in Texas during the February freeze might have sat for a week racking up no miles, Strain said. Instead, drivers were paid.

The base level that Heartland now pays is a starting point, Strain said. Its basic structure, he added, is that Heartland pays the base "and you have the upward potential. It all comes down to how much you want to run and how long you want to stay out. If you want to get home, we'll meet you on that."

Helmich offered some guidelines on what those base payments are. For the drivers who get home the most, the pay would be roughly $50,000 per year. More active drivers get about $70,000, he said, "and the drivers we see week in and week out get significantly more than that."

Strain suggested that selling the approach to drivers may have been a challenge. "It isn't a bait and switch," he said. But the program has given drivers "peace of mind that their paycheck is never going to go below X."

Keeping those hours up and ensuring that drivers get paid for the inevitable nonproductive hours has become particularly important, Helmich said. The squeeze on employees that drivers are facing is being matched at the facilities operated by shippers or other warehouses. So no matter how efficient Heartland's operations might be, the drivers often run into a buzzsaw of inefficiency at shippers' facilities. "They are struggling to find dock workers and forklift drivers, and that has been the bulk of the challenge," Helmich said. 

But with all the freight that's available on the market, a shipper that gets a poor reputation for service to drivers is going to find itself avoided. That can incentivize shippers to operate more efficiently, because for drivers, "you're able to pick very favorable freight," Helmich said. The end result is that deadhead miles are down, unproductive miles "get better" and the overall situation for drivers is getting better, he added.

Other key points by Strain and Helmich in the interview with UBS transportation analyst Tom Wadewitz during their 45-minute presentation:

— About 99% of the company's miles are driven by company drivers. Heartland's expenses for purchased transportation in the first quarter were not even $1 million on revenues of about $152 million. By contrast, Marten Transportation MRTN had first-quarter revenues of $223 million and purchased transportation expenses of $40.7 million.

— At the bottom of the trucking market in April/May 2020, Heartland was turning down about 1,000 loads every week. That number hit 10,000 by the end of the fourth quarter and is holding there. "That allows us to do a little bit of shifting in our market basket," Strain said. If the freight is "not driver-friendly," it can be passed over for something that won't hold drivers up.

— Rate increases were being negotiated in the first quarter of the year at mid-single digits. They are now solidly in double digits, boosted by the Texas freeze but progressing toward higher numbers before that, Strain said. "It won't be until the third quarter where we get the full effect of a full quarter of our rate increases," he added.

— Between cash on hand and lines of credit, Heartland has about $350 million in liquidity. Helmich said there is "plenty of wiggle room" if Heartland wants to make an acquisition. But an acquisition would need to have $100 million in revenue, Strain said, and would need to be positive to the company's operating ratio, which in the first quarter was 86.5% on an adjusted basis, one of the better ORs in the truckload industry.

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