FedEx executives will not receive their annual incentive bonus in 2021, and the Memphis company’s long-term bonus structure has been tweaked by its board of directors amid a turbulent period for the logistics giant.
FedEx said eliminating fiscal year 2021’s annual incentive compensation plan was due to “the current economic and business uncertainty resulting from the COVID-19 pandemic” in a regulatory filing Friday.
FedEx didn’t provide an annual incentive compensation payout in fiscal 2019 and said in October it didn’t expect to have one in 2020, either.
FedEx has nixed these bonuses during a challenging stretch for the company. A global economic slowdown, the costly integration of TNT Express in Europe and volume shifting from commercial shipments to costlier residential deliveries are among the reasons FedEx has struggled the past several quarters.
COVID-19 has made matters worse.
“The COVID-19 pandemic and resulting significantly weaker global economic conditions have negatively impacted our results of operations and are expected to continue to impact our business, results of operations, cash flows and liquidity,” FedEx said in an April filing.
Besides eliminating bonuses, FedEx is implementing cost-saving measures elsewhere.
Chairman and CEO Fred Smith reduced his base salary by 91% from April 1 to Sept. 30 amid the pandemic. FedEx has also instituted furloughs in parts of the company.
In Friday’s filing, FedEx said it expects to see non-cash asset impairment charges of $370 million for the fourth quarter, which ended May 31. FedEx said $348 million of that is tied to FedEx Office, which saw “declining print revenue and temporary store closures … resulting from the COVID-19 pandemic.”
FedEx will report its 2020 fourth quarter earnings on Tuesday.
Stock grants, long-term bonus still in play
The board of directors' compensation committee did, however, approve one-time restricted FedEx stock grants to officers besides Smith, along with one-time stock option grants to Smith and COO Raj Subramaniam. This comes in addition to the annual grants executive officers already receive.
The company’s long-term incentive bonus is still in play for top executives in 2021, as well. This bonus factors performance over a three-year period.
The long-term incentive bonus is a large one for the company’s leaders. Smith made $6.3 million from the 2017-2019 edition of the plan, with other executives like CFO Alan Graf, CIO Rob Carter and FedEx Ground CEO Henry Maier all receiving more than $1.5 million each from that payout.
Historically, FedEx has used earnings per share as the only metric for payouts under the plan. However, FedEx will add a new metric to its 2021-2023 edition of the plan: capital expenditures divided by revenue over the three-year period.
How the payout will be calculated
Earnings per share will still make up 75% of total possible payout, with the new metric constituting the remaining 25%.
FedEx executives won’t get the earnings-per-share portion of their long-term incentive payout if the company’s average EPS growth rate is below 5% for the period, per the filing. They will receive a maximum payout if the growth rate is 15% or higher.
The new metric “was chosen to incent management to further optimize capital deployment and efficiency over the three-fiscal-year period,” the filing said. Executives will see a maximum payout if capital expenditures divided by revenue is 6% or lower, with no payout if it’s above 8.5%.
CFO Alan Graf said in March that FedEx’s capital expenditures should decline after fiscal 2022, as it retires and replaces older, costlier-to-maintain aircraft. Additionally, the company has “a doomsday scenario” to eliminate as much capital spending as needed in 2021, he said.
“I don’t think we’re going to hit that,” Graf said. “I think our cash flows are going to be strong, but I can’t tell you that until we get through the coronavirus.”
In 2019, the International Brotherhood of Teamsters griped that FedEx using earnings-per-share growth as the sole metric for long-term incentive payouts was an outlier versus other freight industry players. The Teamsters also said FedEx executives have benefited from soft performance targets.
“When used in isolation, EPS is a poor guide to economic profit and ultimately long-term shareholder returns,” the Teamsters said then.
The Teamsters voiced its concerns in a letter to FedEx shareholders, but shareholders in September ultimately approved of FedEx’s executive compensation plan that included the long-term incentive payments.
Max Garland covers FedEx, logistics and health care for The Commercial Appeal. Reach him at max.garland@commercialappeal.com or 901-529-2651 and on Twitter @MaxGarlandTypes.
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