The rosy news for FedEx’s executives…

August 15, 2012

FedEx Corporation (FDX) made headlines earlier this week after it announced plans to offer voluntary buyouts to an unknown number of employees — one step in a bigger plan to restructure the company’s U. S. operations. But the same day as the buyout buzz hit, FedEx also filed its 2012 proxy. Perhaps we were supposed to put on rose-colored glasses before we read the executive compensation numbers, but we didn’t realize that ahead of time.

What we found is a big spike in the compensation numbers for all of the named executive officers (NEOs). For example, the total compensation for the chairman, president, and CEO, Frederick W. Smith, jumped to $13.68 million for fiscal 2012, compared to $7.26 million in fiscal 2011. The other NEOs received total compensation ranging between $5.7 million and $7.7 million, with each of the top five executives getting an increase of more than 60% from his prior year’s total.

Many of the compensation categories (salary, stock options, stock awards, etc.) remained relatively constant from last year, but the huge increases came in the form of non-equity incentive compensation. Whereas Smith got $375,000 for fiscal 2011, this year he received $6.57 million. The other NEOs all got more than ten times the non-equity bonus they got last year, too, with each getting somewhere between $2.39 million at the low end of the spectrum up to $3 million at the top end.

We wondered why the executives got these big bonuses when other news about the company has been decidedly less rosy. Besides the impending layoffs (which FedEx promises to explain further at its Investors’ meeting in early October), last month (as reported here and elsewhere) the post office notified FedEx that it plans to put its $1-billion package delivery contract up for bid in September, 2013. And earlier this year, net profits were down, and (as reported by CNBC) FedEx lowered its forecast “based on expectations for below-trend global growth and a mild euro zone recession.”

The big payouts include money paid under the annual incentive compensation (AIC) plan and the long-term incentive (LTI) plan. FedEx explains its reasoning for awarding the big cash payouts in a section of the proxy starting on page 25. That’s where we found this explanation:

“Consistent with our pay-for-performance philosophy and reflecting FedEx’s financial performance during fiscal 2012, the payout opportunity under our annual incentive compensation (AIC) program was below target. Maximum payouts were earned in fiscal 2012 by all participants, including the named executive officers, under our long-term incentive compensation (LTI) program, which is tied to financial performance over a three-year period, as we substantially exceeded the earnings per share (EPS) goals required for payout.”

The proxy also revealed that the board “decided that it was in the best interests of the company and its shareowners” to exclude a $134 million impairment charge (related to retiring some old planes) before it calculated the NEOs’ AIC numbers. Yet elsewhere the filing explained that the board exercised its discretion to reduce Smith’s AIC payout from $1.47 million to $1.32 million.

Whatever the amounts, though, it will be interesting to see how shareholders react to the big numbers. The proxy notes that “96.3% of the voted shares supported the compensation of FedEx’s named executive officers” in the 2011 advisory vote.

Yet not everyone is happy. Shareholder proposal number 4, filed by the International Brotherhood of Teamsters General Fund, argues that FedEx’s chairman should be an independent director rather than Smith, who has held the position since 1977 and who the Teamsters claim “exert[s] a dominant influence over the Board.” As part of its argument, the Teamsters state:

“In 2011, the Board, using its discretion, awarded Smith an additional bonus of $375,000 in annual incentive compensation even though he was entitled to only $91,592 based on the Company’s financial performance.”

If the Teamsters didn’t like the $375,000 non-equity bonus Smith got last year, we wonder what they’ll think of the $6.57 million award that he got this year. But maybe they’ll be less annoyed if they learn from our mistake and put on rose-colored glasses before they get to that part of the proxy.

Image source: Ladies’ rose-colored glasses, via Shutterstock

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