FedEx Delivers Salary Cuts To Managers

FedEx reported higher profits in its most recent quarter, but it sees trouble ahead. The package delivery giant is cutting salaries for some 36,000 managers. CEO Fred Smith will take the biggest cut percentage-wise, but all managers' paychecks will shrink. FedEx and its main rival UPS are seeing overall package volume fall as the economy slows.

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STEVE INSKEEP, host:

Now, let's talk about Federal Express. It's a much-praised company, but in this economy, it has to cut back. It is cutting the salaries of 36,000 employees, as NPR's Wendy Kaufman reports.

WENDY KAUFMAN: The salary cuts start at the top, with CEO Fred Smith taking a 20-percent cut in base salary. Other senior executives and salaried employees will take pay cuts up between five and 10 percent. The company's also suspending most 401k-matching contributions, and eliminating many merit races. In a video addressed to employees, Smith said the economic conditions are the worst the company has seen since its founding, more than 35 years ago.

(Soundbite of internal video announcement)

Mr. FRED SMITH (Chief Executive Officer, FedEx Corporation): But you know, what the economists say about FedEx is true. We are a barometer of the world economy, and we simply have to recognize that we must adapt to this big downward swing in economic activity, as well as many other companies.

KAUFMAN: As the economy has weakened, so has FedEx's business. Right now, the company delivers about 7.5 million express and ground packages each day. That's about two percent fewer than a year ago. The package-delivery firm says it expects that the measures announced yesterday, along with steps taken earlier this year, will result in savings of about a billion dollars this fiscal year. FedEx says it chose this approach over layoffs primarily for two reasons: It wanted to minimize job losses, and it wanted to position the company for future growth when the economy rebounds.

Dr. NARIMAN BEHRAVESH (Chief Economist, Global Insight): I think these salary cuts at FedEx are a smart move.

KAUFMAN: First, says Nariman Behravesh, chief economist at Global Insight, the approach is humane. FedEx, he says, is spreading the cuts from the top down.

Dr. BEHRAVESH: It's also very smart in the sense that it's extremely costly to fire employees and to then rehire them when the recovery starts. If it works, and I think there's a good chance it will, it reduces that cost.

KAUFMAN: That assessment is shared by Peter Cappelli, a professor of management at the University of Pennsylvania's Wharton School. He adds...

Dr. PETER CAPPELLI (Management, Wharton School, University of Pennsylvania): I hope other companies will at least think about this. It may not make sense for everybody, but I guess I've been concerned the extent to which no companies have been thinking about doing anything except laying people off. A prominent company that does something like this at least makes the executive elsewhere think maybe we ought to think about this, too.

KAUFMAN: Ordinarily, when wages are cut and cut widely across the economy, economists begin to worry about a deflationary impact, but Global Insight's Behravesh says right now he's not all that concerned.

Dr. BEHRAVESH: If it's understood that this is temporary, that, you know, things will reverse once the economy recovers, I think that can actually limit the depths of a recession and reduce that deflationary risk.

KAUFMAN: The salary reductions for roughly 36,000 FedEx workers go into effect January 1st. The company's hourly workers and independent contractors won't be affected by these cuts. Wendy Kaufman, NPR News.

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