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Keeping employees: the Federal Express approach.

Keeping Employees

It is hard to find good people. Naturally once you find them, it is essential to find ways to keep them. One company that has done just that is Federal Express. The world's largest cargo airline has some big numbers, like $5 billion in revenues, and also some impressive small numbers, like a staff turnover rate of around 1%.|1~

What we can learn from Federal Express is that retention is interrelated with recruitment and employee relations. If you are careful whom you recruit, there will be a better match between recruits and company, and you are more likely to retain them. Federal Express begins their retention efforts by centralizing their recruitment efforts.

Federal Express has recruitment centers in 25 locations nationwide. They developed these centers to provide a better quality applicant for their managers to interview. These centers, which work under the direction of regional personnel offices, screen all applicants. At each of these centers a peer recruiter program was introduced to help their professional recruiters process and screen applicants. As the name implies, these peer recruiters have actual experience with the type of work recruits will perform. Not only do these peer recruiters help select recruits, they also give job applicants a more realistic idea of what is expected of them and their positions.

Post Hire

While good recruitment is certainly important, it is what happens to recruits after joining the company that determines whether a company will retain them. When Fred Smith, the CEO of Federal Express, was asked about their success, he said, "I don't think a damn thing Federal Express does in terms of its people is particularly revolutionary and unknown." So what differentiates them? What makes them so effective? Smith replied by gesturing to the books surrounding him on his office shelves and saying, "We just do what's in all those books."|1~ What he was saying is that Federal Express simply applies commonly known managerial concepts and effectively translates them into action through a philosophy they define as "people, service, profits." They point out that it is no accident that "people" are listed first in the phrase. Federal Express says people are placed first because it makes good business sense. Everything good that occurs is based on your ability to involve your people.

Perhaps it is because of Federal Express' attitude that they have never been unionized since their inception in 1973. As recently as October 1989, union representation was rejected by the company's flight crew members. Few carriers can say that.

So what has led to these good employee relations? It is not talk but deeds that impress employees and improve relations. Smith notes, "I think a lot of companies talk about how their employees are their most important asset, but where you can really tell whether it is very important or not is how much their senior management spends on the issues."|1~ He goes on to say that he spends about 25% of his time on personnel issues--probably five times what the average CEO spends on those issues.

The People, Service, Profits philosophy is implemented by asking and answering several basic questions. The first is, "What is expected of me, and what do you want me to do?" Federal Express tries to spend a lot of time answering that question for their personnel by having an extensive orientation program that explains Federal Express' values.

Smith emphasizes that the second most important question is, "What is in it for me?"|1~ Federal Express provides tangible evidence of what is in it for them. The company strictly adheres to a promotion from within policy and a career progression policy. An extensive job posting system keeps employees informed of opportunities. When a position is open, notices are posted throughout the company for all employees to see. Only when no qualified applicants are found from inside the company do they begin to search on the outside. Thus, there is ample opportunity for all employees to advance within the company. Another popular career advancement tool is a tuition refund program, where the company reimburses employees for their tuition costs. As would be expected, Federal Express employs a lot of students in its main hub and other locations. Incentives

Career advancement is not the only incentive used to increase the retention odds. One approach that works well is the awards program, which is designed to reinforce desired behavior such as quality work and customer focus. Federal Express believes this and other incentive programs helps them deliver high-quality service and keeps their people motivated.

Federal Express knows that acknowledging efforts is essential for a motivated and satisfied work force, and that such acknowledgment stimulates new ideas and encourages better performance and team spirit.

An incentive with this goal is their Bravo Zulu Voucher Program. It recognizes employee performance that surpasses normal job responsibilities. Recognition can range from nonfinancial Bravo Zulu letters of appreciation to cash or noncash awards presented by management.

Another of their incentives is the Suggestion Awards Program. As the name implies, it encourages employees to submit ideas that will improve company operations. These must be ideas that lower cost, increase productivity, increase revenues, or promote safer working conditions.

Granted, many companies have suggestion programs. So why does this one work? For one thing, it goes beyond the handshake and certificate that so often typify such programs. Employees at Federal Express can earn $100 to $25,000 for ideas that are implemented. Nice handshake!

One of the nice things about the Federal Express incentive is that the customer is not left out of this reward process. Customers have a voice in selecting outstanding service. The Golden Falcon Award is given to full-time employees who have demonstrated service to their customers that goes above and beyond the call of duty. Nominations for these awards are usually based on unsolicited internal, as well as external, customer letters citing outstanding performance. Winners of these awards are announced monthly, usually through company publications and video programs. Winners receive an award and, most important, shares of stock. Federal Express' highest award, is the Five Star Award, given to individuals for outstanding performance which has materially helped the corporation enhance service, profitability, and teamwork. Several categories of employees are eligible for the award including nonmanagerial employees, managers or senior managers, and managing directors and officers.


Federal Express' success with employee relations and retention depends on candid communication. Smith mentioned that the third question management needs to answer is, "Where do I go to resolve a problem?"|1~ He emphasizes that Federal Express spends enormous time on their internal employee response program. The heart of this program is an open door procedure where employees are encouraged to find answers to situations they find disagreeable controversial, or contrary to existing policy. This open door policy has no time limit for employees, but if an employee expresses concern, management must respond in 14 days. Additionally, Smith receives a printout listing every open door concern submitted, and how and when it was answered.

Employees' questions are sent to experts -- anyone from a staff person to the CEO. In all cases, the person answering has a maximum of 14 days to respond. This focuses on responsiveness. The other plus is the program's visibility. The CEO not only responds to questions he receives, but also reviews every question the company receives every week.

Open doors, especially the way Federal Express uses them, can be effective, but perhaps the company's most successful communication tool is their renowned Guaranteed Fair Treatment Procedure (GFTP). This procedure which they believe is the cornerstone of their "people" philosophy, gives each Federal Express employee the right to have any eligible issue go through a systematic review by progressively higher levels of management. Their GFTP helps ensure that personnel have a right to discuss complaints with management without fear of retaliation. The company also believes it helps them maintain an open atmosphere as well as keep their complaint handling process fair and equitable. GFTP: How Does It Work?

Any person who is disciplined has access to GFTP. It has also been used to resolve other problems or concerns such as issues involving selection, application of compensation and benefits policies, performance deficiencies, or unacceptable conduct. The GFTP process is not used to change employment hours, compensation rates, content of benefit policies, or content of corporate personnel policies and procedures. These concerns are addressed through other means, like the company's open door policy and suggestion program, already discussed. Their Survey/Feedback/Action policy, which we will look at in a moment, also serves this purpose.

The Federal Express Guaranteed Fair Treatment Procedure has three basic steps. The first step, called management review, requires employees to submit a written complaint to a member of management within seven days of the occurrence of an eligible issue. This manager, senior manager, or managing director then reviews all the relevant information. After he has a grasp of the facts, he makes a decision and then holds a telephone conference or individual meeting with the complainant. At that time he or she will either uphold, modify, or overturn the initial management action that was the source of the complaint. This management review will let the complainant and personnel office know, in writing, of their decision. Federal Express points out that when multi-levels of management are involved in the decision, a consensus will be reached. This initial part of the review process must occur within 10 calendar days of receipt of the complaint unless a written notice of time extension is provided to personnel.

The second step (if necessary) is called the officer review, which is conducted by either a vice president or a senior vice president of a division. If the complainant is not satisfied with the decision at the end of step one, then he or she can submit a written complaint for officer review. This step must be taken within seven days after step one.

At this stage of the GFTP, the vice president or senior vice president reviews all relevant information, conducts an additional investigation, if necessary, and decides whether to uphold, modify, or overturn earlier management actions. The officer can also initiate a board of review (see last step). Any decision is put in writing and sent to the person complaining. A copy of the written response is also sent to Personnel and the complainant's manager. Again, this process must occur within 10 days of receipt of the complaint.

Appeals Board

The last step, executive review, follows the same general pattern as the first two steps. The person complaining has seven days after completing step two to submit his or her complaint to the Employee Relation Department. This department then investigates and prepares a GFTP case file for the Appeals Board to review. The Appeals Board again reviews all relevant information and makes a decision to uphold, overturn, initiate a Board of Review, or take other appropriate actions. All of this must occur within 14 calendar days of receipt of the complaint. The only exception is if a written notice of time extension has been sent to both complainant and personnel.

Once a decision has been made, the Appeals Board has three days to respond in writing to the complainant with a copy going also to personnel. This Appeals Board can adjust lower level decisions, including the imposition of more severe discipline. The decision of this Appeals Board is final and binding on the complainant and the company.

Such a complaint process is thorough, but it can be very time consuming, as one might imagine. Good organization and streamlining are needed to keep the time reasonable. At Federal Express, prior to fiscal year 1986, the average GFTP heard by an Appeals Board (the last step) took 75 days. In fiscal years '86 and '87 it took 60 days, and in '88, 56 days. For this reason, on May 17, 1989, Federal Express made changes in the process which was just described.

To speed it up, they emphasized that if one is involved in a GFTP, a meeting must be scheduled ASAP -- If additional time is required to investigate the facts, make sure enough time is allowed to acquire information in a timely manner. To further insure speed, be sure to communicate your expectations to everyone in the chain and make sure each GFTP file contains all relevant documentation. The purpose is to make sure no time is wasted acquiring these documents.

Survey/Feedback/Action (SFA)

The Federal Express survey/feedback/action program, which complements their GFTP and other communication tools, is an annual survey of employee attitudes. Management uses the survey to learn what they need to do to improve in specific departments and with the company in general. To ensure that the survey is a fair gauge of attitudes, it is anonymous.

For the last 13 years, Federal Express has reported the survey results for every group or work unit within the organization. Management never sees individual responses. All managers are required to meet and discuss employee concerns within six weeks after the work group results have been tallied. If a manager's feedback scores are low, then he or she is expected to develop and implement corrective action.

Action is the key to the program's success. The company believes that if people feel they have some real influence, then they are likely to participate. An example of how Federal Express shows that their opinion counts was recounted by their CEO. Fred Smith said that local part-timers were applying for local full-time jobs, but employees with more seniority and from outside the local area were bumping them and cutting off the part-timers' opportunity to advance. To help solve the problem, and keep high-value employees, Federal Express set up a program where local part-timers receive credit for local service. Employee Training Program

Employee retention and relations depend as much on development of employees as on communication and incentives. Federal Express is always looking for ways to improve their training. Toward this end, it implemented an Interactive Video Instruction (IVI) in 1986.

IVI is used for new information training and test preparation. (Customer service employees are tested twice a year on job knowledge.) A big advantage of the IVI program is that it allows employees to take advantage of slack periods to train themselves. Each employee can proceed at his or her own pace, and training can be repeated as much as necessary. According to Federal Express, IVI helps them standardize information and reduce training time by 60%; it is also used for new hire orientation.

Other training for non-managers used by Federal Express includes their Leadership Evaluation and Awareness Program (LEAP), which is used to qualify non-management employees for management positions. The process requires employees to fill out a questionnaire that measures nine leadership characteristics. There is a formal critique from employees, managers, a written exam, panel interview, oral presentation, and peer assessment.

Managers are not left out of this training process. Federal Express uses a three day in-depth program called Management Applied Personnel Skills (MAPS), which is designed to provide background information on and practical applications of a variety of personnel and legal issues normally encountered in the work place. A minimum of five classes are offered monthly, one in each of the company's regions, and one in the home office at Memphis, Tennessee.

In addition to MAPS, Federal Express has a Leadership Institute, which is a full week of required management training for all new managers. The Institute also teaches quality management, leadership concepts, and company philosophy.

Concluding Thoughts

Smith believes it is important for people to take pride in what they do. In the Federal Express case, he points out the importance of the cargo they carry. As managers, it is essential to make sure employees know what they should do and why it is important. There must be some ulterior reason, some higher-level purpose for work rather than just earning a salary. Employees need a sense of purpose and rewards for a job well done. Equally important, they must have the power to influence what is done and how it is done.

Federal Express' efforts at retaining employees are worth emphasizing, but are certainly not the only ones. They may not be appropriate for all organizations, but one point is universal. If we hope to keep our employees, then we must think more comprehensively how they will fit in and how we keep them involved so they do not want to leave.


1.Trunick, Perry A., "Leadership and People Distinguish Federal Express," Transportation and Distribution, December, 1989, p. 19.

Dr. Denton has published nine practitioner-oriented books and his articles have appeared in over 70 management magazines and journals.
COPYRIGHT 1992 Society for the Advancement of Management
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1992 Gale, Cengage Learning. All rights reserved.

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Title Annotation:Federal Express Corp.
Author:Denton, D. Keith
Publication:SAM Advanced Management Journal
Date:Jun 22, 1992
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