What is a viable remuneration structure for taxi drivers – A salaried employee route

Posted in Musings | 1 comment

Earlier on I was writing about the viability of salaried taxi drivers in Singapore, and it prompted quite a bit of discussion on my friend’s facebook.

There were quite a number of comments, largely concerning whether taxi drivers will choose the salaried route vs the current, and that once you paid taxi drivers a fixed salary, they would become lazy.

Ironically, when you think about it, both of these concerns are exactly the opposite. To me though, the devil is always in the details. Thus, I spent a bit of time thinking about it, and drafted a brief remuneration structure as follows below. The idea of course, is how do you pay a basic salary, yet with enough incentive for them to work hard. At the same time, we are trying to enhance the current taxi industry in Singapore, so certain aspects of that must be taken in consideration.

To me, modelling a remuneration structure after similar systems in stock broking, banking sales, and other forms of salaried sales role might be an interesting starting point. You have a low basic salary, a quarterly performance bonus, and an annual quality bonus.

Proportion

There are many industries where there are salaried sales people, and self employed agents. Examples are stock broking (around 15% salaried, 85% self employed), insurance (probably closer to only 10% salaried) and property (also around 10-15% salaried). Thus, I would imagine the same can apply here. The existing remuneration system can be kept for those who chose the self employed route. Currently, they have to take a vocational license course, put a $1k security deposit, and pay a daily rental of around $70-120 for the taxi. They get to keep all earnings and they have access to cheaper fuel.

As an employee, they would have to go through a typical interview and selection process. Whereas in the self employed model, almost anybody can become a taxi driver if they pay for their own license, course and deposit. Employees will also have the usual health benefits, annual leave, and maybe some form of pay increment or career progression (like team leader? region supervisor?)

Basic salary

In setting a basic salary, it has to be a decent amount, such that people would consider working. Yet, it should be low enough such that bonuses can make a significant portion of their income. A starting point could be something like $1.5k per month. If they show consistent performance, perhaps basic salary can go up to even $3k. Of course, an increase in basic salary doesn’t really change their annual remuneration, since this takes into account their total revenue generated.

Bonus (quarterly)

A quarterly bonus can be calculated as a proportion of quarterly revenue generated. For example, if they generated $21k of revenue over a 3 month period, their total remuneration can be set as 70% of that, or $14,700.  A 20% withholding can be kept as an annual bonus element which I will talk about later. On top of that, the basic salary paid should also be deducted from this. As such, their quarterly bonus for that quarter would be $14,700 *80% – ($1500 *3 assuming the basic is $1.5k/month) = 7,260. Essentially this works out to be around $3920 per month, excluding the annual bonus component.

Of course, to have $21k  revenue over 3 months, means an average of $280 revenue a day if they work 25 days in a month. This would be the amount an above average taxi driver currently does.

The percentages are currently quite arbitrary, since I am not privy to the actual margins a taxi company should earn. I imagine it should be a lower percentage, like maybe 60% of revenue instead of 70%.

Bonus (annual)

This annual bonus is more towards service quality and standards. An example could be splitting it into 4 benchmarks, each one releasing a quarter of the withheld bonus.

1) This can be tied to service quality. How many compliments or complaints do a driver get? Of course, this can be rigged by getting their friends to write in. I expect more likely than not, 95% will get this bonus with no difficulty

2) This can be tied to 3rd party mystery shopping. Perhaps over the course of the year, a taxi company can employ mystery shopper to board the cab and just rate the driver accordingly. Since the driver does not know it’s a mystery shopper, it essentially allows the driver to be judged. This can be tied to how polite the driver is, how long it takes to respond to advance booking, how often the driver speeds, how familiar he is with the roads (though it’s not a big concern nowadays given GPS), and various other stuff. Again, a big portion of drivers should get this bonus with no difficulty

3) This is tied more to performance standards. For example, if a salaried driver should cover 250km per day to get an average rating and 500km a day to get a good rating, the company can track to see what’s the average distance covered a day. It could also be tied to how many hours a driver drives with a passenger on board. There would be times a driver might have to drive around for a while before finding a passenger. As a driver becomes more experienced, they might know where are the hotspots and this scoring can improve. Let’s say if they are contracted to drive 9 hours a day, including 1 hour buffer for lunch, then this can be a metric to show how many hours are productive. This should not be tied to the amount of revenue collected, else drivers might start to pick their rides. It should really just be tied to the actual productivity of the taxi. How many hours driven, how many km driven, etc. I would imagine only 40-60% might obtain this bonus. There will always be underperforming sales people, and like wise, there will be underperforming drivers who prefer to take things easy. That said, there is nothing wrong, unless they can’t even cover the fixed overheads of operating a taxi.

4) This would be tied to a ranking system. For example, the top 10% of the drivers in terms of revenue would get this additional bonus in full, the next 30% might get half of this bonus. The idea is to reward drivers that bring in revenue for the company. Thus, it is only fair to reward these drivers further.

Flaws

One of the biggest concerns mentioned was the idea that it is hard to track these drivers, since they are running about and are not your usual desk bound workers. However, my point was that tracking technology is so prevalent nowadays. There are cameras which cars install to take a video of the road in front of them. Thus, it is very possible to install another camera facing the driver or even the whole interior of the cab. This can be used to show service standards, cash fraud, or even any forms of crime against the driver. After all, most retail shops have cameras facing the cashier.

Another concern stemming from there is that the salaried drivers can still use the taxi as a form of private vehicle, and yet get paid for having the taxi (This is compared to the idea that current taxi drivers actually pay $70-120 for a day hire of a taxi, as compared to $35-90 for a private car.)

With current technology, it is very easy to track a vehicle using GPS. In fact, google even has a turnkey solution available for companies called Google Coordinate. The taxi company can install a data box that tracks the total distance moved, amount of time it was a revenue fare, and the total revenue collected. If a taxi has not moved for 2 hours, then it’s obvious that the driver is slacking somewhere. If the revenue collected for the day is $200, then the taxi driver would have to turn in $200 of revenue at the end of the day. It could be family members that they picked up, or that they feel like driving without having any passengers.

This actually works in minimising the current complaints that there are a lot of taxis around which displays that they are hired, but there are no passengers on board.

And of course, from the data tracking collected, an underperforming driver can be asked to leave, or asked to be converted into a self employed driver.

To me however, the one biggest problem to this is that no private company would undertake such a venture by themselves. Having 300 salaried taxi drivers, each earning $1.5k basic salary means a monthly fixed manpower overhead of $450k. Unless this is a collaboration with the government, it might be tough.

Of course, I don’t think the government should ‘give’ the taxi company the money to get it done, but more like a private-public collaboration, whereby the government funds the joint venture, while taking a stake in the new enterprise. After 5 years, the taxi company will have to buy out the government’s stake. After all, it is for the good of the nation.

Do you think this remuneration plan would work out? Anybody in taxi companies or transport regulation?