Uber and Transportation Network Companies (TNCs) – Commission-Driven
Uber, along with similar services like Lyft, has been emerging over recent years, taking the world by storm through a cheap and affordable ride-share service. These services, dubbed transportation network companies (TNCs), link drivers with customers via a simple smartphone application.
For TNCs, pay structure is an essential part of their business model. For most organisations, pay is important for employee retention, satisfaction and productivity, but for TNCs, the payment structure is also their central revenue source.
TNCs have pay structures unlike most other businesses, split into two halves. On one side, they utilise standard systems for their software engineers, customer service agents and other corporate staff, whilst on the other hand, the actual day-to-day fundamentals of their business involve individual drivers who are paid very differently.
For example, Uber brings together drivers and passengers, defining a fee dependent on the length of the journey. Drivers pick up the passenger and take them to their destination, similar to a normal taxi service. The difference is that Uber does not employ the drivers on an hourly or annual rate. Instead, the drivers are paid a proportion of the journey’s cost, which is agreed with the passenger up front, based on key factors like the distance travelled. Uber takes a booking fee and safe driver’s fee to cover business operations and generate income.
Whilst this is ultimately a commission-based pay structure, this approach differs so drastically to the norm because there is no base salary available to the drivers. Often, commission serves as an additional benefit rather than as the primary salary source. Whilst car salesmen have predefined salaries and earn extra based on the value of the cars that they sell, Uber drivers have no guaranteed pay, making everything based on the work that they can get, journey lengths and ultimately – how much Uber charges the customer.
There are countless advantages and disadvantages surrounding this type of pay structure, with controversy surrounding this pay structure for self-employed black-cab drivers who have campaigned against Uber and how it operates. The key point to consider is that this only works for services that connect two individuals that are not directly employed by the organisation – Uber has 45,000 registered drivers in London alone. For many tech start-ups, this pay structure is proving useful, though not necessarily the best option. Whether it’s right for you depends on your organisation’s vision, goals, purpose and industry.