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44 | 2009 Annual Report United States Postal Service
In 2008, total operating expenses of $77,738 million were
$2,367 million, or 3.0%, less than 2007. Retiree health ben-
efi ts decreased by $2,677 million in 2008 compared to an in-
crease of $8,447 million in 2007. The decrease was primar-
ily due to a 2007 one-time charge in addition to the annual
amounts required by P.L. 109-435. Despite the decrease,
compensation and benefi ts along with retiree health ben-
efi ts were $60,992 million, or 78.5%, of operating expenses
compared to $64,270 million, or 80.2%, in 2007. Transpor-
tation expenses increased by $459 million, or 7.1%, while
other expenses increased $452 million, or 4.8%.
COMPENSATION AND BENEFITS
Compensation and benefi ts were $431 million, or 0.8%,
less than 2008, mainly due to an unprecedented reduction
of 115 million workhours. This achievement is discussed
in further detail in the “Workhours” section of this report.
We have contracts with our four largest labor unions which
include COLA-based raises. There were no COLA increas-
es in 2009, but the carryover effect from the record high
COLAs in 2008 was signifi cant. The total impact of COLAs
was $1.1 billion in 2009 compared to $562 million in 2008.
Non-bargaining employees receive pay increases through a
pay-for-performance program that makes meaningful dis-
tinctions in performance. These employees do not receive
automatic salary increases, nor do they receive COLAs or
locality pay.
Compensation and Benefi ts Expenses
(dollars in millions)
2009 2008 2007
Compensation $ 39,208 40,633 $ 41,695
Retirement 5,917 5,899 5,737
Health Benefi ts 5,294 5,376 5,401
Workers’ Compensation 2,223 1,227 880
Other 512 450 473
Total Compensation
and Benefi ts Expenses $ 53,154 $ 53,585 $ 54,186
Compensation costs decreased by $1,425 million, or
3.5%, due to a record decline of 115 million workhours.
This was partially offset by a 6.2% increase in the average
hourly labor rate, consisting mainly of COLA. Also offset-
ting a portion of the savings generated by the decrease in
workhours was a $197 million accrual for incentive pay-
ments for 13,400 APWU and Mail handler employees who
elected by September 30, 2009, to retire or resign from
the Postal Service. These incentives, included in compen-
sation expense, will be paid in two installments in Quarter I,
2010, and Quarter I, 2011. An additional 6,750 employees
elected to retire or resign in October 2009; the expense for
their incentives will be expensed in Quarter I, 2010.
Retirement expenses, which consist primarily of employer
contributions to the Federal Employees Retirement Sys-
tem (FERS) and Social Security, increased by $18 mil-
lion, or 0.3%. Other expenses increased by $62 million,
or 13.8%, due mainly to rising unemployment expenses
driven by extended benefi ts granted by many states. Ad-
ditional information on workhours, retirement, health ben-
efi ts and workers’ compensation expenses are provided
on the following pages.
Current employees’ health benefi ts expense decreased $82
million, or 1.5%, primarily due to the reduction in personnel.
Workers’ compensation expenses increased $996 million,
or 81.2%, mainly due to a non-cash charge of $718 mil-
lion related to a change in estimated discount and infl ation
rates used to calculate the liability for future payments. This
increase in the estimated liability did not affect our cash
outlays for 2009. See Note 12, Workers’ Compensation, in
the Notes to the Financial Statements for more information.
In 2008, total personnel compensation and benefi ts costs of
$53,585 million were $601 million, or 1.1%, less than 2007.
The decrease was mainly due to reductions in workhours.
Compensation expenses were $1,062 million, or 2.5%,
lower in 2008 compared to 2007, in spite of COLA in-
creases that added $562 million to compensation expens-
es. These increases were offset somewhat by a decrease
of 50 million workhours. In 2008, workers’ compensation
increased by $347 million.
WORKHOURS
The unprecedented 115 million, or 8.4%, decrease in
2009 workhours resulted in large part from lower mail vol-
umes. Management initiatives and delivery route adjust-
ments, initiated in response to the decline in workload,
contributed further reductions. Workhours decreased in all
major functions. The 2009 reductions were in addition to
the 50 million hour reduction from the prior year. In 2009,
mail processing used 42 million fewer hours than the prior
year. City and rural delivery hours were less than 2008 by
28 million and 9 million hours, respectively. Customer ser-
vice and retail hours were down 26 million workhours from
the prior year. The other workhour category decreased by
10 million hours. Contributing to the overall workhour re-
duction was the continuing close scrutiny of overtime us-
age which resulted in a reduction of 35.7%, or 36 million,
overtime hours. The overtime ratio to total workhours was
5.1% in 2009, as compared with 7.3% for 2008.