(Bloomberg Opinion) -- FedEx Corp. has cracked the code on how to hire in today’s tight labor market: higher wages, better benefits and more flexibility. Who knew?
After offering those three things, the company received more than 111,000 job applications last week, the most in history and up from 52,000 in the week of May 8, Chief Operating Officer Raj Subramaniam said on Thursday afternoon after the package-delivery giant reported better-than-expected quarterly results. The benefits included increased paid time off and tuition reimbursement. The company has hired more than 60,000 frontline workers since mid-September. Higher wage rates and network disruptions tied to labor shortages resulted in $470 million in additional costs in the three months ended Nov. 30, but the company expects those cost pressures to moderate in the second half of its fiscal year.
This projected easing doesn’t reflect expectations that wage rates will drop back down; higher pay is “here to stay,” Chief Financial Officer Mike Lenz said on the company’s earnings call. Rather, the relief will come from a return to more normalized operations and a plan to hold onto more seasonal hires than normal after the holiday peak to keep up with robust demand. “The whole problem was our networks were inefficient,” Subramaniam said. “Even as we speak, we are rerouting packages back to where [they] should be in the first place, and that’s what’s going to make the difference.”
There were 11 million job openings across the U.S. economy as of October, and workers are still quitting their positions at a near-record rate, according to Labor Department data. Myriad theories have been offered for why that might be, from a wave of early retirements and Covid health concerns to a lack of child-care options and increased competition in a recovering economy. The real answer might be a mix of all of these, but the pandemic also seems to have inspired a rediscovery of self-worth, particularly among lower-income laborers. Few workers proved more essential to the functioning of the U.S. economy than the FedEx and United Parcel Service Inc. delivery drivers and warehouse workers who kept goods flowing to households when many were wary of venturing into physical stores. Their efforts helped drive record sales and reinvigorated the delivery companies’ pricing power. It’s normal that FedEx is paying its workers more — and it can afford to do so.
Revenue per package jumped 9% in FedEx’s Ground unit in the most recent quarter and 20% on a composite basis in the Express segment, reflecting the company’s ability to push through price increases and surcharges. FedEx said on Thursday that it now expects the U.S. parcel market to swell to 134 million pieces a day by the end of 2026, up 70% from 2020. The company boosted its adjusted earnings guidance for the year to as much $21.50 a share, returning to a previous range that it had trimmed in September after getting blindsided by higher labor costs.
The results have been so strong during Covid that FedEx reinstated a cash bonus plan for its executives that it had previously scrapped earlier in the pandemic because of the economic uncertainty. It also kept in place special stock grants that were meant to compensate for the lack of a cash bonus. All in, Chief Executive Officer Fred Smith made $14.3 million in the year ended May 2021, while Subramaniam pocketed $8.2 million and CFO Lenz, who took the role halfway through the fiscal year, took home $4.5 million, according to FedEx’s proxy filing. The median FedEx employee, as defined by the company, was paid $46,171, including $8,609 in employer-provided health benefits.
The dynamic is reminiscent of the record net income that Deere & Co. reported one week after reaching a deal for higher wages and benefits for more than 10,000 members of the United Auto Workers union that staged the first strike at the company since 1986. In fact, a Bloomberg News analysis found that despite all the hand-wringing about higher labor costs, U.S. corporations outside of the finance industry enjoyed their fattest profit margins since the 1950s over the past two quarters. This suggests there’s plenty of buffer — at least among the larger public companies — to raise compensation for workers or improve their quality of life without kicking off the kind of wage-price spiral that could sink the economy.
More from other writers at Bloomberg Opinion:
- Fed Turns Hawkish Now to Avoid Real Pain Later: Brian Chappatta
- Companies Made Heaps of Money. And Workers?: Chris Bryant
- Wages Are Rising, But They’re Not Pushing Inflation: Nir Kaissar
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Brooke Sutherland is a Bloomberg Opinion columnist covering deals and industrial companies. She previously wrote an M&A column for Bloomberg News.
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