How does FedEx use bonuses to incentivize customer service and safety among contractors?
For Independent Service Providers (ISPs), Independent Contractors (ICs), and linehaul operations, FedEx offers bonuses to contractors that go above and beyond.
Bonuses can add a substantial amount to your overall revenue each year. Whether you are an existing FedEx contractor or looking to buy a FedEx route, obtaining contractor bonuses should absolutely be part of your financial goals and strategies.
FedEx established an Independent Service Provider (ISP) model for all FedEx P&D routes and the transition to this ISP model will complete by May 2020.
The ISP model incorporates two types of bonuses: Customer Service Incentives (CSI) and Period Safety Incentives (PSI).
FedEx uses CSIs to incentivize above high quality service among contractors. All contractors receive CSIs on a regular schedule (based on a negotiated rate in their contract). The CSI bonus decreases in a given period if there were CSI complaints against that contractor. For example, late deliveries or customer complaints.
PSIs recognize contractors that operate their routes without safety violations or incidents in a specific period of time. Similar to CSIs, contractors negotiate a rate for regular PSI payments. These payouts decrease for every safety violation within the payout period. Safety violations may include accidents with the FedEx truck, a delivery person injured on the job, or damage to a customer’s property.
Both the CSI and PSI bonuses are ways in which FedEx influences contractor team behaviors without mandating behaviors.
More about ISP bonuses:
- CSIs and PSIs pay out every 4 weeks, or 13 times a year.
- Contractors negotiate incentive rates with their contracts and these rates may change from year to year.
- FedEx calculates incentives at 100% minus deductions. Deductions indicate CSI or PSI violations. If there are no deductions, a contractor will retain the full incentive. If there is one deduction, the percentage goes down an increment; with two deductions, another increment. So on and so forth.
The Independent Contractor (IC) model* also has a bonus structure: monthly and quarterly.
Monthly bonuses award contractors $970 per ground Primary Service Area (PSA) and $600 per home delivery PSA. These are given 12 times a year.
Similar to ISP bonuses, the percentage of the incentive received goes down with every complaint, missed delivery, etc.
Contractors receive quarterly bonuses four times per year and the amount is based on the number of PSAs in the contractor’s territory.
*Note: FedEx plans to transition all IC model businesses to ISP business by May 2020.
Linehaul contractors receive a monthly bonus 12 times per year. They receive a $0.037 per mile bonus unless there is a safety or service incident. If there are a safety or service incidents, the bonus amount per mile decreases per incident.
When we talked about big risks and big rewards in linehaul runs, these bonuses per mile are a large part of that puzzle.
WHAT'S NEXT IF YOU WANT TO LEARN MORE?
If you are interested in buying a FedEx route, check out our listing page for operations currently on the market.
If you need more help with the details and navigating contract negotiations, contact us for consulting.
We can walk you through pieces of the puzzle for buying a FedEx route, such as:
- IC vs. ISP Business Models
- Overlap Requirements
- Understanding Contract Terms
- Optimizing Operations
- Fleet Management
- Business Valuation
- Terminal Relationship Management
- Driver Recruitment/Training
And, as always, give us a call and we can help point you in the right direction.