News / FedEx pay cuts to reps a risky strategy that could hit sales performance

© Prudencio Alvarez

Observers are scratching their heads over a new cost-cutting measure at FedEx: according to a report in Freightwaves, the integrator has slashed salaries of its inside sales employees by $12,600.

This reduces the minimum for this employee group to $38,000 a year; they usually max out at about $90,000.

FedEx has also lowered the entry requirement for inside sales personnel.

Previously, they needed a college degree, but in future a high school diploma will suffice, which could be a reaction to the red-hot labour market that has seen companies scramble to find enough employees.

According to external estimates, FedEx employs between 300 and 500 inside sales reps in the US who deal solely with clients by phone, e-mail or online, selling Express, Ground and Freight services. This means they are serving small to mid-sized shippers, too small to be visited by FedEx field sales staff.

Dean Maciuba, managing partner of Crossroads Parcel Consulting, finds the move puzzling. He said: “If true, this does not make sense, as FedEx needs to grow its base of small to medium-sized customers that pay more for shipping than large clients.”

FedEx has made it clear that the SME shipper base is a prime target, and last year angered many large shippers by strictly enforcing volume caps on them.

In June it notified several large clients on a Friday that its FedEx Freight unit would no longer pick up their shipments, as of the following Monday, as it was trimming business to cope with surging volumes.

The inside sales staff are geared to developing new business from SME shippers and if their accounts grow beyond a certain threshold, they are passed on to field executives. In turn, shippers whose volumes deteriorate are relegated from field to inside sales staff. As these FedEx employees’ bonuses are linked to growing new business, they have little incentive to service clients perceived to be on a downward slope.

Mr Maciuba warned that the pay cuts could undermine FedEx’s competitive position vis-a-vis UPS.

“UPS is focused like a laser on the small customer, and the FedEx inside sales professional has historically represented a competitive advantage over UPS for FedEx. By significantly lowering their base pay, FedEx is sending the message that it wants the legacy inside sales professional to go away so it can save money by outsourcing or further automating the interface with the small customer,” he said.

In light of the darkening business climate, he finds: “This is very dangerous, especially when we are probably entering into a recession and companies need as many highly motivated sales professionals as possible to find new business, when there will be fewer new business opportunities due to a slowing economy.”

Richard Meldner, co-founder of eSeller365, a news and intelligence marketplace for online merchants, suspects lowering the base pay of inside reps may be designed to push them harder to recruit new customers, making up for lower pay through increased bonuses.

However, Mr Maciuba doubts this strategy would work. He explained: “I am not sure that paying a sales professional significantly less base pay will motivate them to work harder and close more business. Some may be inclined to turn to UPS to find new employment.”

And Mr Meldner sees a potential knock-on effect on FedEx’s existing business. As inside sales reps chase new business to make up for their shortfall in income, service to their existing clientele may suffer, possibly resulting in some of them turning to competitors, he warned.