Redesigned mip

[pretzel_man]

Tieguy:

Watch the PE ratio?

When we were private, we ran a 12 to 14 PE ratio. It was much more tied to past earnings rather than future speculation. Therefore, good earnings meant good stock growth.

As a public company, we are currently running a PE ratio of about 24 1/2. Just before we dropped, we were running about 29.

My point is that the public market values the stock more on future estimates than past performance. This is different than when we were private.

I think we'll settle at a ratio of about 26. Just about double of when we were private. That's been pretty consistent since the day of the IPO.

So, just like when we were private, earnings growth will drive stock growth. If we take our eye off that ball, Wall Street may value us the same as we did before the IPO, and that's almost 1/2 of today.

Therefore, as a long time UPSer, I'm okay with the MIP change if it means a focused management attention and more stock growth.

P-Man

 

[feguy]

Wow. I shake my head reading this stuff from you guys.
I know a lot of management folks. I have not heard many complain about this new system. How can they, really, until they see how it shakes out?
One thing I don't think a lot realize...not a bit of this affects "the bottom line" in any way. The "old" MIP took 15% of pretax profits. Profits. That IS the bottom line. All expenses, charges, etc are already figured. Profits are what's left. The company can do with them what they will. They've been earned. Buy an airplane, build a building, reinvest in the company or give it to management in the MIP. NONE of that affects the bottom line. Check with any accountant worth his salt.

 

[proups]

MIP was 15% of pre-tax profits, divided among the number of people in the plan - profit sharing.

Now, MIP is based on hitting targets the company establishes - and we are pretty good at hitting performance targets - with no 15% ceiling. That to me is better for management than a profit sharing plan.

The recommendation by the division manager factor is still there as I understand it, but how many people do you know that don't get stock, half month, etc.....that didn't have one foot out the door?

 

[tieguy]

Complaining? Not my intent to complain but to evaluate / share my opinion on the new MIP process.

Your point about the bottom line is interesting. It does appear there is an effort with this new system to defer expense. Why would you think they would do so if not to give the impression of improved earnings? I don't think the company needs the cash. I could certainly be wrong but it does appear this would be one of the benifits of the new system whether intended or not.

 

[tieguy]

whats FE stand for Fedex? If so what type of profit sharing plan do you guys enjoy. Should be a good one with the earnings you guys are raking in?

 

[had_enough]

Went public in 99 to have stock to purchase other companies, have not bought a thing that could not be bought with pretty cash to UPS. About the same time, started increasing out of pocket benefit cost, cutting raises, but raising dividend (great for guys at top with tens of thousands of shares). I believe it was fall of 02 when all senior VPs (district mgrs on up) met in MD and voted on 50 some cost initiatives. One initiative was to do away with MIP, luckily it did not pass, enough still had loyalty to people under them. Now a redesigned MIP? This group at the top is out to fill their pockets at the expense of people who make this company run, have lost touch with the way Jim Casey and others run this company for the first 90 years. If 3 years from now, these same people on the board think they can get a $10 rise (and make a couple extra million for themselves) in the stock price by doing away with MIP and this deferred money. How do you think they will vote? Watch your back.

 

[oneoff]

Fellow UPSers, you all need to look under the rug and understand all of the compensation and benefit shortfalls. Ask the right questions and review and understand the 10-K and financial statements, especially those that are compensation based. Even roses have thorn

Speed-de-mon is this the nickname you wife gave you?

 

[upscorpis]

A couple of thoughts on this:

had_enough has touched on something I view as a potential impetous for this change. The move to a public company was to have created a currency other than cash for acquisitions. The stock's performance to date has not made this currency extremely valuable. Perhaps this is a way to get folks focused on share price to induce it to rise and perhaps raise it's intrisic value for an acquisition too large for cash? Just a thought. I don't know it to be true.

Yes, I too worry about unrealistic goals. I have to say though I don't expect that to occur intentionally. Something to consider when parsing the notes accompanying the presentation is the language used describing when the salary committee would intervene regarding the MIP award. Paraphrasing, the salary committee would consider a shortfall in the stated goals when setting the award. There was no mention of the salary committee being involved when the goals were eclipsed. This leads me to believe that if the goals were unintentionally unrealistic or something not under management control was the cause of a shortfall, then that would be considered before reducing the MIP factor.

The new plan will reduce the number of A shares being sold. Folks that wanted cash and sell immediately will get some cash. The rest of their shares cannot be immediately sold. Folks that are selling A shares for diversification can now invest tax free in their 401k instead.

The vesting over five years will help UPS retain talent as leaving for a higher up front salary will leave money on the table. Realize UPS does study management turnover trends (just like hourly turnover trends) and does things to address it.

Since this presents a short window of extra cash, I wonder what the strategy is to use it. I expect it to be leveraged somehow.

 

[brownmonster]

Kind of reminds me of when UPS eliminated the thrift plan and replaced it with stock. The backlash caused UPS to leave the old option in place for the people who didn't want stock.(I pity the fools!) Only time will tell.

 

[tieguy]

In studying this change it appears the biggest motivation for change may be retention of managment. I wonder if there is a real concern many of our management folks may leave to work for our expanding competitors. With defferred compensation each management person would sacrific quite a bit of money leaving.

 

[the]

I cannot believe you say this plan will retain management people. The word on the street is many are looking elsewhere.

 

[oneoff]

UPSers are already giving up lots of money. How do you think UPS has been able to obtain such vast amounts of cash even though it blows millions on out dated software and subsidiaries which only reduce eanings per share? Low pay increases, paper compensation in the form of poorly performing stock, and other benefit changes which really takes the oppotunity for cash out of your pocket until you accumulate lots of stock, dividends and reach a certain grade level. Deferred cost such as the new MIP puts the burden of cash flow on later years when many have retired and sold their stock. Someone should project the cashflow needs for the next 5 to 10 years. You may be suprised at the potential for cash drain coming!!!!!! Its amasing to hear about so many retired UPSers that pass away a few year after retirement and wind up leaving all of their wealth to their wife and family. Maybe they should have been able to enjoy their life when younger and just getting by while dragging the family all over the world.

 

[yeah]

The company I helped grow has turned into a bunch of thieves. I can understand defferred compensation, But If you leave voluntarily or get fired, how can they take money you have earned? Remember you have to be reccommended for stock.I could even accept the defferred compensation if it was guarnteed over same time period if you leave the company. I have always viewed my MIP as the overtime pay I earned working 14 - 16 hour days with no lunch.

 

[yeah]

There is no more job security. I am getting older, and while I have gotten better at managing, can no longer work like I did at 18. ( Do not forget we are extra handtrucks when the hourly do not come to work. )What happens to all the money I have on the table five years from now, when they decide I cannot deliver/pick-up/load/unload productively? 55 is still a long way off.

 

[had_enough]

They will take your earned money. That part about nominated by management committe lets them according to a lawyer I talked to about it. Lawyer said legally they do not have to nominate you and do not have to give a reason for not nominating you. I know because my manager gave me his word (should have known better) that I would get a prorated share (11/12) when I left in August 04 because I quote "Thats your money you earned it they can not take it away from you". In October I found out I was not nominated and out 11K that I earned with extra hours and days (Sunday sorts during peak).

I also did the right thing when I left, gave 2 weeks, trained replacement in job no one knew (supervising 30 UPS employees a 2 customer sites and solving those customers problems). In return, I got 8 of the 15 vacation days I had left (new vacation policy started in 03). I got no optional or sick days even though I only used 1 up until the end of August and maybe used an average of 4 days a year the 11 years I was in mgmt. My benefits were cut the Monday after I left. I should have just stopped showing up and I probably would have been paid and had benefits at least thru September before they figured out I was not coming back.

my advice if you are quitting JUST DISAPPEAR AND DO NOT RETURN ANY OF UPS PHONE CALLS!

 

[swingdriver]

If you have "had enough" what are you still doing here?

 

[tieguy]

"I cannot believe you say this plan will retain management people. The word on the street is many are looking elsewhere."

if that happens it will happen initially once you get to a point where you have 5 years of stock that you lose if you leave no one will leave.

example:
In 2010 a supervisor would have approximately 25000 stock he would lose if he left in the first year. 20,000 the second year, 15000 the third, 10,000 the fourth. A total of approximately 70,000 dollars worth of stock if he left the company. Twice that if a manager. Thats a big hit.

 

[duker333]

I'll tell what I have a problem with... this change to me at least gives
>insight to how the management committee addresses its priorities ... change
>to the MIP such as this is the foremost thing they speak to??????.....how
>about changing the pension plan so we don't have to work 35 years to retire;
>how about giving ample staffing to the package operations that now have a friend/t
>ratio to hourly of 37:1, and when one of the 2 supervisors is on vacation the
>sole supervisor is working 15 hours;, how about not expecting no excess
>overtime to an OMS who has to cover vacation for another that is out;, how
>about a little.... just a very little explanation on how these "stretch
>goals/gains from PAS " were arrived at or how the braintrust calculated
>everyone to gain to the same extent; how about putting all the things we in
>package are asked to do everyday...from 110 e-mails, churnscope visits,
>safety observation, train drivers, OJS drivers, be on conference calls,
>answer to every staff operation for there compliance items, be in on the
>preload and then do check-ins at night and simply run the biggest part of our
>business everyday....I could go on for a week ....but why bother.......My
>leadership thinks above all this they need to make this change......If the
>job was just a little more reasonable and paid us fairly for what we do, they
>wouldn't need to worry about the up and coming generation flipping their
>stock, they would be a committed and loyal group that wouldn't dare sell
>their shares. But I know the common response to comments like mine are to
>quit..... the leaders in this company have an obligation to hear these
>concerns and do something. Last word on this MIP change ....if they put the
>change out for a vote....without the Annie Casey Foundation shares being
>voted would the change pass a shareholder vote.........no way!!!!!!

 

[interested]

We have to be prepared that there could be some major contraction in the management ranks. PAS is not going away, and once we work out the kinks, you are going to see a lot of other technological and operational changes in our system. It is going to completely change the way we run our operations. Not right away, but ten years from now, it will be a whole new ballgame.

Much higher skill sets are going to be needed in management, a much higher premium is going to be placed on education. Management will have to have a great deal of cross-functionality. Forget about the days when you just had to print a report and understand it, someday soon you may have to crunch your own data and create your own reports. We are going to have much greater responsibilities as management people in the wake of technological advancement, and we are going to have to go outside the company to pay for some of this skillset. Where does that leave so many of our management crew who are in their eary forties and have over two decades with UPS? Maybe out in the cold.

We are losing marketshare to competition and we are a bloated, extremely top-heavy organization. We cannot do anything quickly and we need to run lighter and more efficiently. Tenure has always been rewarded and promoted at UPS, far more than skill. You started your career at age 18-23- You showed up every day, did what your told, put in the extra hours, took your medicine and relocated, or worked the pre-load for five years-You were rewarded.

The restructuring of the MIP takes a lot of the financial burden off of UPS in the wake of a major internal management restructure or downsize. I think if we have a couple more bad quarters, you will see a more adverse reaction from Wall Street, and you could see a huge restructuring on shareholder pressure alone. It is more likely that technological advancements, working off of the PAS system's eventual success, will greatly impact the number of management people required to run a building.

Every company at some time in their life cycle goes through some adversity. Sometimes entire industries fall on hard times, Airline, Automotive, Financial. We have had a run of ninety plus years, almost all of it without any significant competition to speak of. Now we are facing some changes, and we have to be prepared that a by-product of that change could mean significant contraction of the management ranks.

Just like UPS has to think ahead and make strategic changes, like the MIP, we as employees must also look ahead and prepare ourselves for change. Three years ago, if you polled management and asked if UPS would be trading $20 under FedEx, you would have been laughed out of the sort.

Things change, Nothing ever stays the same.

 

[new_steward]

The problems with bringing in outside people are many!(here are a few)
1. They just don't know how things are done.
1.5 Unrealistic ideas.
2. NO labor relations skills.
2.5 Long term schooling = little to no real world experience, can't talk to people, bad comunication skills.
3. Someone is pissed they got passed over for an outsider.