Trucks.com

Trucking Firms Fight High Driver Turnover With ESOPs

With commercial driver turnover at big trucking firms running as high as 100 percent, some companies are considering handing drivers shares in their business as way of reducing churn and rewarding long-term employees.

These companies are discovering that by offering drivers a small stake via employee stock ownership plans, they can increase the length of time that trained workers stay with the business.

Reducing the rate of employee attrition is among the trucking industry’s most crucial issues because it can cost thousands of dollars to train each new driver. Moreover, turnover hurts fleet operations, leaving expensive trucks idle and cargo undelivered.

This is compounded by a chronic industry shortage of big-rig drivers. Trucking companies were projected to need as many as 48,000 more drivers by the end of last year, the American Trucking Associations said.

That deficit is expected to grown. Over the next decade, trucking will need to hire 890,000 new drivers, or an average of 89,000 per year, the ATA said.

“The ability to find enough qualified drivers is one of our industry’s biggest challenges,” said Bill Graves, chief executive of the ATA, a national trade association headquartered in Arlington, Va. The ATA also tracked the turnover data.

That’s why the ATA is recommending solutions such as bonuses, improved benefits, higher pay, increased route flexibility and more opportunities for drivers to spend time at home for holidays and family events.

Another tool is the relatively obscure employee stock ownership plan, or ESOP.

An ESOP is an agreement whereby employees — in this case drivers — earn a tiny fractional stake in their company. The longer they work, the more stock they get.

The amount of shares they collect is based on their compensation and years of service with the employer. Typically, it takes five years or more for employees to become fully vested in the plan.

At TMC Transportation of Des Moines, Iowa, 20 percent of the stock earned by drivers becomes vested after two years of service. The vesting grows by an additional 20 percent annually until drivers are completely vested after six years of employment.

To become eligible for the ESOP, drivers must have at least 1,000 hours of service and one year of employment with TMC. They also must be at least 21 years old.

Typically, there are four ways workers can cash out their ESOP assets, said J. Michael Keeling, president of the ESOP Association, a trade group in Washington, D.C.

Employees can sell vested shares when they leave the company. They can cash out at retirement or if they go on disability. Heirs also would sell the stock when the employee dies.

Keeling calls the ESOP a type of defined contribution plan, and a “kissing cousin” to the conventional 401(k). A big difference is that in a 401(k), employees can make contributions to their own retirement. In a conventional ESOP, all contributions to the plan are made by the employer.

Some companies like ESOPs because they provide a model for handing stock over to employees in an orderly way, and sharing control of the company as leaders see fit.

Keeling contrasted the ESOP to a workers co-op plan, which he characterized as one person, one vote. But in an ESOP, which is set up as a trust, management can keep control by determining who the trustees are. Many companies, Keeling said, set up the ESOP with “internal” trustees, who are typically upper-level executives. 

Paschall Truck Lines of Murray, Ky., adopted an ESOP three years ago when its owner and chief executive, Randall A. Waller, was looking for an exit plan from the business he had purchased decades earlier.

The transaction allowed Waller to get his money but still keep the business operating as Paschall Truck Lines and stay rooted in Murray, its longtime home. Potential buyers would have moved the company, Waller said when he announced the transaction.

Keeling said that’s an effective strategy for exiting shareholders who want the company to go on without them.

“You got to cash out closely held stock sooner or later,” Keeling said.

Such transactions also can help firms avoid outside buyouts that might trigger layoffs or even shut the company down, he said.

Now Paschall trumpets its status as a 100 percent employee-owned firm that values its drivers.

Paschall’s employees, of which there are about 950, are eligible for ESOPs after one year.

“They do their jobs; they help the company make money,” said Tom Stephens, Paschall’s spokesman. “It’s worked out very well.”

As with other, similar programs, Paschall pays out these stock incentives at retirement. Vesting happens in 20 percent increments over five years.

The biggest issue, Stephens said, is explaining the plan to drivers so that it can make the employee-ownership concept work toward better retention.

While such a plan might be a good technique for companies to retain their own drivers, it will have little effect on the tens of thousands of independent truck drivers who are contractors, experts said. The handful of trucking companies offering stock provide it only for their permanent employees.

ESOPs are a better employee retention tool than other methods of trying to keep drivers onboard, said Steve Viscelli, a visiting assistant professor of sociology at Swarthmore College and author of the “The Big Rig: Trucking and the Decline of the American Dream,” which will be published by University of California Press in April.

Viscelli contrasted it to training contracts, under which companies attach stipulations that force a driver who quits early to repay training costs. With a bill of several thousand dollars hanging over their heads, drivers have a reason to think twice about leaving a company.

“A good chunk of them really do stick around,” Viscelli said.

The ESOP is a more positive way to encourage loyalty, he said, because it “aligns the worker’s interests and the company’s interests.”