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Pay by the shift, not the hour
The nightly bottleneck
The whole system hinged on one nightly job: every package had to be shifted quickly in a single central location. If that shift couldn't be finished fast, the system had no integrity, and Federal Express struggled badly to make it work.
The company tried moral suasion and everything else it could think of, but reason alone only went so far.
The pay change
Finally, somebody noticed that the night shift was being paid by the hour. The thought was that paying them by the shift might make the system work better, and when the company tried it, that solution worked.
Why does hourly pay slow a task down?
When pay is counted in hours, finishing early means earning less, so nothing rewards speed. Economists call this a principal-agent problem: the employer wants the work done fast but cannot easily watch how hard each person pushes. Pay tied to a finished job moves the reward onto the outcome the employer cares about. Piece rates, which pay for each unit of output, have been used in factories and garment work since the nineteenth century.
Why send every package through one hub?
Federal Express began delivering packages in 1973 and has run its main sorting hub in Memphis, Tennessee, from the start. In a hub-and-spoke system, planes from many cities land around the same late hours, packages are sorted into new loads, and planes leave for their destinations before morning. Connecting every pair of cities directly would need far more routes, since the number of pairs grows with the square of the number of cities. Passenger airlines in the United States adopted hub-and-spoke networks widely after deregulation in 1978.
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