Royal Mail reduces compensation cost by improving service

Daniel Farey-Jones, brandrepublic.com, Wednesday, 18 May 2005, 7:00am,

LONDON - Improved service from Royal Mail, which revealed a £537m profit on record turnover of £8.96bn yesterday, means that business users will this year qualify for much less compensation from the company for missed full-year performance targets.

The compensation is likely to be much lower than that relating to Royal Mail's poor performance in 2003-2004, because the company has hit more service targets and come closer to hitting others. The company has paid out £42m so far in relation to 2003-2004.

Compensation will apply for users of first- and second-class printed postage impression and first- and second-class response services, but not for users of Mailsort 1 and Presstream 1 and 2, as it did last year.

The exception to the improvement was first-class response services, which dropped to 80.5% on time compared with 81.7% last year. The performance target of 90.3% was missed by nearly 10 percentage points.

This sparked a call from Postwatch's external relations director Andy Frewin for Postcomm to fine Royal Mail. Frewin also criticised the 5% cap on compensation payments, which provide a rebate to customers equal to the margin by which Royal Mail misses a full-year target, if it misses by more than 1%.

Postwatch is still pursuing Royal Mail for the full £80m it says is owed to business in compensation payments relating to 2003-2004. According to a Postcomm spokeswoman, £42m has been paid out and the issue has been "pretty much resolved, except for a few appeals".

However, Postwatch congratulated Royal Mail on its improving performance, evidenced by its service levels during the most recent quarter. It hit eight out of 15 targets and the only targets it missed by more than 1% were first- and second-class response.

The £537m profit figure qualified each Royal Mail employee for a bonus payment of £1,074, while chief executive Adam Crozier landed a £2.2m bonus for all the work he has done since joining in February 2003, on top of his £500,000 annual pay.

According to Royal Mail chairman Alan Leighton, the company's transformation was its greatest achievement in decades, but successfully competing in an open mail market is going to be even more difficult. "We've a mountain to climb and we've only reached the base camp," he said.

If you have an opinion on this or any other issue raised on Brand Republic, join the debate in the Forum.

This article was first published on brandrepublic.com