US Postal Service 2011 Annual Report Download - page 51

2011 Report on Form 10-K United States Postal Service - 49 -
104] as of the end of the calendar year in which the
bonus or award is paid.” 39 U.S.C. § 3686(a)-(b). This
total compensation cap was $227,300 for calendar year
2009, $230,700 for calendar year 2010 and $230,700 for
calendar year 2011. In approving any such program, the
Board must determine that the bonus or award is based
on a performance appraisal system that makes
meaningful distinctions based on relative performance.
In addition, the Board may allow up to 12 officers or
employees of the Postal Service in critical senior
executive or equivalent positions to be paid total annual
compensation up to “120 percent of the total annual
compensation payable to the Vice President [of the
United States] under [3 U.S.C. § 104] as of the end of
the calendar year in which such payment is received.” 39
U.S.C. § 3686(c). Based on the Vice President’s salary
for calendar years 2009, 2010 and 2011, this
compensation cap was $272,760 for calendar year 2009,
$276,840 for calendar year 2010 and $276,840 for
calendar year 2011.
By law, postal employees, including executive officers,
are entitled to participate in either the Civil Service
Retirement System or Federal Employees Retirement
System, depending on when their federal employment
began. These retirement systems are described later in
this compensation discussion and analysis. In addition,
in order to remain competitive with comparable
employment in private industry and other parts of the
federal government, postal policy also authorizes certain
additional benefits for all officers of the Postal Service,
including executive officers. These include participation
in the Federal Employees Health Benefits plan, paid life
insurance, a periodic physical examination and parking.
Other than changes required by law, the Board must
authorize any increases to benefits for officers.
Compensation for postal executive officers is
significantly below that of the private sector. In 2010,
Towers Watson found that USPS executive base
salaries are significantly below market when compared
against published survey data of comparable jobs in the
private sector. Although market data for equity or other
long-term incentives was not a focus of that analysis,
inclusion of such data would likely cause USPS
executive total compensation to fall even further from the
comparator marketplace.
COMPENSATION PHILOSOPHY AND
OBJECTIVES
The Board recognizes that there is a significant
disconnect between the comparability requirement and
the compensation caps in the law governing the Postal
Service and that the various compensation caps do not
enable the Board to provide compensation and benefits
for executive officers that are fully comparable to the
private sector. The Board also recognizes that many of
the compensation and benefit tools available in the
private sector, such as equity ownership, are not
available to the Postal Service, given its status as part of
the federal government. These limitations make it
difficult for the Postal Service to compete in the
marketplace for executive officers and to retain current
executive officers.
To attempt to achieve some level of comparability within
the confines of the law, the Board has designed a
compensation system that balances amounts paid as
salary to executives in a given year, with the ability of the
executive to earn additional compensation by meeting
performance goals and objectives; a portion of this
compensation may need to be deferred because of the
compensation caps. The financial challenges facing the
Postal Service significantly influenced the decisions on
compensation for fiscal year 2011, as customers
continue to change the way they use the Postal
Service’s products and services. The Board was also
mindful of the impact of the economy and the political
arena on the Postal Service’s business.
Within the confines of its legislative authority, the
Board’s philosophy is that:
 There should be a strong connection between
individual executive compensation and the
Postal Service’s performance on a number of
dimensions, including service, net income and
productivity.
 Compensation and benefits should be designed
to attract and retain top organizational
contributors to ensure the Postal Service has the
caliber of executives who will enable it to
operate at the highest levels of performance and
productivity.
 Lump sum incentives should be set to motivate
executives to improve performance continuously
on a long-term basis and to perform above the
annually-established goals and objectives. If
individual performance exceeds the goals and
objectives set for the year, the employee should
receive additional compensation. Likewise, if
overall performance falls below the annual goals
and objectives, the individual should be paid
less.
 A significant amount of the executive’s
compensation should be at risk and the “at-risk”