US Postal Service 2012 Annual Report Download - page 65

2012 Report on Form 10-K United States Postal Service- 64 -
 Executive success is defined by a number of factors, including financial returns, the quality of service the Postal
Service provides, the results achieved by the executive’s actions to enhance the organization’s efficiency and
overcome challenges and whether an executive met established individual goals. For these reasons, lump sum
incentives may be appropriate even in years in which the Postal Service sustains financial losses. This is
especially true where the Postal Service successfully introduced new revenue initiatives, stemmed revenue loss
and maintained and improved service levels while significantly reducing costs.
THE COMPENSATION PROGRAM
In 2007, with the assistance of an independent consulting firm specializing in executive compensation, the Compensation
Committee recommended and the Board approved a salary band for the Postmaster General to be set at the legislative
salary cap. In doing so, the Board’s objectives were to design a compensation program that optimized the legislative
flexibility granted by the Postal Act of 2006, reduced internal pay compression, improved external marketplace
competitiveness, and honored legislative constraints and existing pay ranges. For the other executive officers, the Board
set pay bands based on salary relationships of comparable executive officers in the comparator external market. In
general, the Board has maintained these types of pay band relationships since 2007.
When the Governors appointed the current Postmaster General, they set his salary at the legislative salary cap. Given
the Postal Service’s significant financial challenges when he assumed office, the current Postmaster General asked the
Governors not to award him any additional compensation, beyond salary and the general types of benefits provided to
postal executives. The Governors agreed.
Over the years, the Governors have authorized the Postmaster General to establish salaries for the other executive
officers, within the confines of the salary ranges established by the Governors. For calendar year 2012, after reviewing
recommendations from the Postmaster General and the Compensation Committee and in light of the Postal Service’s
financial condition, the Governors froze salary ranges and salaries.
In 2012, the Postal Service continued to employ a national performance assessment program (“NPA”) to set annual
performance goals and metrics that vary among executive officers and are weighted to reflect appropriately the degree to
which an executive is able to influence the overall performance of the Postal Service. Annual NPA metrics and targets
generally take into consideration the Postal Service’s performance during the prior year and particular challenges the
Postal Service expects to face during the upcoming year. The NPA places emphasis on objective, measurable
performance indicators. The Governors also set individual metrics and targets for the Postmaster General and Deputy
Postmaster General and authorize the Postmaster General to establish individual metrics and targets for other officers.
Generally, the Board establishes annual Pay-for-Performance (PFP) incentive opportunities to provide incentives and to
reward the Postmaster General and the Deputy Postmaster General for reaching various levels of performance. The
Postmaster General establishes annual PFP incentive opportunities to provide incentives and to reward the other
executive officers for reaching various levels of performance. Incentive payouts are not made for a particular goal if the
Postal Service or the individual fails to meet minimum acceptable performance standards. While, in some years, annual
PFP incentives are paid out in cash or deferred for future payment where required due to the compensation caps, the
Board determined that, in light of the Postal Service’s financial condition, no performance awards would be issued for
fiscal year 2012. This will be the fifth consecutive year that compensation for executive officers has been impacted by
either a freeze in salary and/or a non-payment of performance lump sums.
The Postal Service has continued to use the NPA process to measure performance during fiscal year 2012 even though
no associated compensation has been approved. NPA performance goals and rewards fall into several categories. These
include areas that an officer may directly influence, such as service, efficiency, employee satisfaction, and productivity, as
well as those that are more susceptible to being affected by general economic conditions, such as revenue generation.
The Board believes that this mix of goals has helped the Postal Service to continue to deliver high-quality service even in
the face of an unsettled economy. Particularly in a troubled economy, in order to remain viable, the Postal Service must
serve its customers with the highest levels of service, creativity, efficiency, and productivity. Measuring results and sharing
information with executive officers on their performance is one way that the Postal Service sustains this performance.
For each goal, the Postmaster General establishes indicators identifying the type of performance that will enable the
Postal Service to achieve or surpass the goal. These performance indicators are aligned at the corporate, functional, and
individual levels and are weighted. The higher an individual’s position is in the organization, the more his or her PFP goals
will be tied to overall corporate performance. The executive officers’ goals are aligned with national performance goals
and linked to the overall success of the Postal Service.