DETROIT - PACKAGE delivery giant FedEx Corp said it was cutting pay for all salaried personnel by 5 per cent and suspending retirement plan contributions as it slashes costs because of a bleak US economic outlook.

The company, which said its cost-cutting measures would reduce expenses by $800 million (S$1.15 trillion) by the end of its fiscal-2010 year, said CEO Fred Smith would take a 20 per cent pay cut and other senior executives would take pay cuts of 7.5 to 10 per cent as of Jan 1.

It also suspended paying matching contributions to its 401(k) retirement plan for a minimum of one year as of Feb 1.

FedEx said it has a hiring freeze in place and has cut staff levels at its FedEx Freight and FedEx Office units.

'Our financial performance is increasingly being challenged by some of the worst economic conditions in the company's 35-year operating history,' Mr Smith said in a statement.

The move to lower retirement contributions provoked an angry response from the US Teamsters union, which has been fighting for years to unionize drivers at FedEx Ground and represents drivers at FedEx's main rival, United Parcel Service .

'The FedEx workers that have made this company a household name and deliver the profits will now shoulder more insecurity for their futures,' Teamster General President Jim Hoffa said in a news release.

'At the busiest time of their delivery season, the company is delivering nothing but coal for its workforce.'

According to a company filing with the US Securities and Exchange Commission in July, Mr Smith's base salary for the company's fiscal 2009 year was set at around US$1.48 million.

The Teamsters said Mr Smith will retain more than US$26 million accrued under the FedEx Retirement Parity Pension Plan and more than US$1 million under the Employees' Pension Plan.

It also said Smith's salary only comprised 13 per cent of the $10.9 million that he raked in for 2008.

FedEx reported a higher profit for its fiscal second quarter, meeting expectations, but gave a broad earnings outlook range for the second half of its fiscal 2009 year and said it would not provide an outlook for the third quarter because of 'significant economic uncertainty'.

'It's tough, but it's a sign of the times,' Mr Al Meyers, portfolio manager of the AHA Diversified Equity Fund, which owns FedEx shares, said of the pay cuts.

'The fact that executives including Fred Smith are taking pay cuts sends a message to employees that 'we're all in the same boat,' which is a positive.'

'As long as we have confidence in the management at FedEx and in the overall business model, we'll stick with them,' he added.

FedEx shares fell $1.37, or 2.14 per cent, to US$62.60 on Thursday on the New York Stock Exchange, after rising as much as 2 per cent earlier in the day.

The Memphis, Tennessee-based company, which like United Parcel Service is considered a bellwether of U.S. economic health, reported that net income for its fiscal second quarter ended Nov 30 rose to US$493 million, or US$1.58 per share.

That compared with the US$479 million, or US$1.54 per share, the company reported a year earlier.

FedEx said falling fuel prices had lifted profits, which offset lower package volumes due to global economic weakness.

'I am very pleased with the results,' said Mr Dan Ortwerth, a research analyst at Edward Jones. 'FedEx is getting better and better at managing its cost structure.'

Edward Jones has a 'buy' rating for both FedEx and UPS. -- THOMSON REUTERS