Ups Case

The emergence of Federal Express and Roadway Package Systems were threatening UPS stranglehold in the package service delivery industry. To safeguard its position as the dominant carrier in the segment, UPS needed to invest in technology to keep abreast with the latest information service innovations to remain competitive. The capital spending plans included crucial decision making on human resources in the Information Services (“IS”) department. UPS was wavering between (i) promoting from inside or hire outsiders, and (ii) to hire insiders and train them or to hire experienced outsiders.

Before making any hiring decisions, it is imperative to consider three salient elements contributing to employee productivity at UPS: a profit-sharing and stock ownership plan, a package of benefits for all employees (full-time and part-time), and a promotion-from-within policy. UPS employed an incentive system that aimed to retain employees, gain their loyalty and motivate them to perform effectively. Nevertheless, salaries were generally low and determined by seniority at the company. Most wealth came in the form of equity appreciation and dividends over a long period of time. This unique profit-sharing and stock ownership plan is one of the main reasons employees pledged their lifelong commitment to the firm, and in turn were rewarded for their loyalty and hard work. Since employees were essentially stakeholders of the firm, they had vested interest to make sure the company performs well. Employees would take home more money during profitable years. Now, if outside hires were to take place, they would need to acclimatize themselves to this unique pay structure. Not many outside hires may like the “deferred compensation” system employed at UPS. Naturally, they would prefer a higher take home salary to avoid the variability in the other component of their compensation that is subjected to company performance, keeping risk tolerance and other factors constant.