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JD.com's Real Delivery Problem Is in the C-Suite

Tim Culpan
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JD.com's Real Delivery Problem Is in the C-Suite

JD.com's Real Delivery Problem Is in the C-Suite

(Bloomberg Opinion) -- Nothing screams desperation more than large-scale layoffs.

Well, except taking minimum pay away from your couriers.

Or perhaps threatening to fire people who “can’t struggle hard” at work “no matter how good or bad their performance is ... regardless of whether it’s for health reasons or for family reasons,” as the Financial Times reported.(1)

China’s JD.com Inc. appears just that desperate. It’s planning to cut up to 8 percent of its workforce, or more than 12,000 people, The Information reported Tuesday, citing unnamed sources. On Wednesday, Bloomberg News reported that the company is planning deep cuts and rescinded some job offers.

That news follows reports that the unprofitable e-commerce company announced it would, on a trial basis, remove the floor on payments to its delivery staff.  

“We don’t know the source of that figure, but it’s inaccurate. There’s been some adjustments as a normal part of our business,” JD.com spokesman Brad Burgess wrote in an email. “Our new compensation approach reflects the expansion of our rapidly developing logistics business. We want to ensure that high performers are compensated fairly.”

A leaked email outlining the company’s policy on pay caused outrage and became one of the most-viewed topics on Sina Weibo Monday, the FT reported. JD.com responded via an official social media post that the email was taken out of context, the paper also noted.

What’s very much in context is the fact that JD.com hasn’t posted a single annual net profit since its IPO in 2014 (or for at least five years prior), and has racked up an accumulated 24 billion yuan ($3.6 billion) in losses since its founding. This tells us that its e-commerce model isn’t the winner investors hoped for.

Performance seems to be the basis for JD.com’s new compensation policy for its couriers, switching from base-pay to commissions, Sina News reported.

Yet it doesn’t seem to be a factor in determining how much to pay its top executives. Founder, Chairman and CEO Richard Liu only gets 1 yuan in salary and zero bonus, but he has a 10 year deal to get options to acquire 2.6 million Class A shares annually. That plan has already cost the company, and thus its shareholders, a cumulative $116 million from 2015 to 2017, according to its annual report from that year. There’s no mention of that compensation being tied to the company’s earnings or share price.

Cutting base pay and switching to commissions probably won’t boost JD.com’s bottom line by much. While 75 percent of its staff work in warehouses and delivery,(2)  just 6.6 percent of expenses in the fourth quarter came from that part of the business. What the move certainly won't do is promote loyalty in an area the company considers its competitive edge, namely its “Superior Services through Nationwide Logistics Network.”

And commission-based compensation also won’t make up for the fact that, like its rivals, JD.com is facing major macroeconomic headwinds and slowing Chinese expenditure, which is expected to drag revenue growth to the slowest pace on record.

But at least cutting jobs and slashing pay allows management to show that it’s “struggling hard, no matter how good or bad their performance is.”

(Updates to reflect company comment.)

(1) The full quote, as translated by the FT: “people who can’t struggle hard, no matter how good or bad their performance is, how high or low their position is,no matter if they’re an old employee or a trainee, regardless of whether it’s for health reasons or for family reasons.”

(2) As of Dec. 31, 2017, 113,000 of 157,831 staff were in delivery and warehouses. 2018 figures weren't immediately available.

To contact the author of this story: Tim Culpan at tculpan1@bloomberg.net

To contact the editor responsible for this story: Rachel Rosenthal at rrosenthal21@bloomberg.net

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Tim Culpan is a Bloomberg Opinion columnist covering technology. He previously covered technology for Bloomberg News.

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