8-KOther Events

FEDEX CORP 8-K Report, Corporate Update (Jun 29, 2022)

Filed June 29, 2022For Securities:FDX

Summary

FedEx Corporation (FDX) announced an updated long-term incentive (LTI) plan for fiscal years 2023 through 2025. This plan is designed to align executive compensation with key company performance objectives and shareholder returns over a three-year period. The core of the plan involves cash payments tied to three weighted performance metrics: Earnings Per Share (EPS) growth (50%), Capital Expenditures as a percentage of Revenue (CapEx/Revenue) (25%), and relative Total Shareholder Return (TSR) compared to the S&P 500 (25%). Investors should note that the EPS targets have been set higher than historical plans, reflecting FedEx's stated three-year EPS growth objectives. The plan also specifies thresholds and caps for payouts based on specific performance levels for each metric, with a focus on driving profitable growth, efficient capital deployment, and competitive shareholder returns. The baseline EPS for fiscal 2022 has been adjusted for certain one-time or non-operational items to provide a clearer picture of ongoing operational performance.

Key Highlights

  • 1FedEx has enhanced its long-term incentive (LTI) plan for FY2023-FY2025, focusing on cash payments to management, including executive officers.
  • 2The LTI plan is weighted 50% on aggregate Earnings Per Share (EPS) goals, 25% on Capital Expenditures as a percentage of Revenue (CapEx/Revenue), and 25% on relative Total Shareholder Return (TSR).
  • 3EPS performance goals are elevated compared to historical plans, aiming for a 5% minimum growth rate to trigger any payout, with a target payout at 15.0% EPS growth and up to 200% of target payout for 20.0%+ EPS growth.
  • 4The baseline EPS for FY2022 is set at $20.61, adjusted from $14.33 GAAP EPS to exclude specific items like mark-to-market retirement plan adjustments, a legal matter, and business realignment/integration costs.
  • 5CapEx/Revenue targets aim for efficiency, with payouts requiring the ratio to be at or below 7.2%, targeting 6.9%, and a maximum payout for ratios at or below 6.6%.
  • 6Relative TSR performance will be measured against the S&P 500, with a condition that FedEx's TSR must not be negative for any payout to occur, regardless of relative performance.
  • 7Payouts under the relative TSR metric range from 0% to 200% of target, depending on FedEx's TSR ranking against the S&P 500 (e.g., 200% for >75th percentile, 0% for <25th percentile).

Frequently Asked Questions

The new LTI plan for fiscal years 2023-2025 is based on three key performance metrics: aggregate Earnings Per Share (EPS) goals over the three-year period (weighted 50%), Capital Expenditures as a percentage of total Revenue (CapEx/Revenue) (weighted 25%), and a relative Total Shareholder Return (TSR) compared to the S&P 500 Index (weighted 25%).

The EPS metric requires at least a 5% average annual EPS growth rate over the three fiscal years to receive any payout. A target payout is achieved at 15.0% EPS growth, with payouts increasing up to 200% of the target for 20.0% or higher EPS growth. The baseline EPS for fiscal 2022 is $20.61, which is the GAAP EPS of $14.33 adjusted for specific items like mark-to-market retirement plan adjustments, a legal matter, and integration/realignment costs.

For the relative TSR metric, FedEx's overall TSR over the three fiscal years must not be negative to qualify for any payout. Payouts are then determined by comparing FedEx's TSR performance against companies in the S&P 500 Index. For instance, outperforming the S&P 500 by more than 75th percentile earns 200% of the target payout, while performing below the 25th percentile earns 0%.

FedEx adjusted its fiscal year 2022 EPS from $14.33 to $20.61 to establish a clearer baseline for the LTI plan. This adjustment excludes specific items such as mark-to-market retirement plan accounting adjustments, the impact of a legal matter, and business realignment/integration costs, aiming to reflect ongoing operational performance rather than one-time or unusual financial events.