US Postal Service 2012 Annual Report Download - page 64

2012 Report on Form 10-K United States Postal Service- 63 -
With the approval of the Board, the Postal Service may develop a program to award a bonus or other reward in excess of
the compensation cap discussed above, as long as this does not cause the total compensation paid to the officer in a year
to “exceed 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 the bonus or award is paid.” 39 U.S.C. § 3686(a)-(b). As the Vice President’s
compensation has been frozen for three years, this total compensation cap was $230,700 for calendar years 2010, 2011,
and 2012. 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 2010, 2011, and 2012, this
compensation cap was $276,840 for calendar years 2010, 2011 and 2012.
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 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 as well do not enable the Board to
provide compensation and benefits for executive officers that are fully comparable to the private sector. This is especially
true given the Postal Service’s current financial challenges. 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. In recent years, the Postal Service has faced significant financial challenges
caused in part by the ongoing decline of First-Class Mail, the economy, and its business model. The Postal Service has
taken significant steps, described below, to reduce costs and generate revenue. However, it has sought and continues to
need comprehensive legislative change to have much greater flexibility to reduce costs, generate new revenue, and return
to financial stability. The ongoing financial challenges facing the Postal Service continued to influence significantly the
decisions on compensation for fiscal year 2012.
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” amount should increase
as the executive’s level of responsibility increases.
 Innovation, effectiveness as an agent for change, the ability to balance day-to-day priorities and long-term
strategies, and organizational value as defined by the achievement of key corporate goals and objectives should
be rewarded.
 Executive compensation should be fair and equitable internally, recognizing the width and breadth of the
responsibilities of the Postal Service’s executives.