FedEx Delivers Salary Cuts To Managers
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.
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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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