US Postal Service 2013 Annual Report Download - page 64

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2013 Report on Form 10-K United States Postal Service 62
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 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 intended to balance an executive’s annual salary with the ability to earn additional compensation by meeting
performance goals and objectives; a portion of this compensation might need to be deferred because of the compensation
caps. Since 2008, the compensation system has not functioned as originally intended, in that significant performance-
based incentives have not been available to the officers of the Postal Service since then. FY2013 was the sixth
consecutive year that compensation for officers has been impacted by a freeze in salary and/or a non-payment of
performance lump sums, as listed more specifically below. By comparison, federal employees only experienced any pay
freeze from 2011 through 2013. Furthermore the federal employees pay freeze applied only to cost-of-living adjustments
(COLA), and not to longevity (step-increase) raises or performance awards.
History of USPS Officer Pay Freezes:
Year
Description
2013
Base salaries frozen
No performance lump sums awarded
2012
Base salaries frozen
No performance lump sums awarded
2011
Salary ranges frozen
Base salaries frozen
No performance lump sums awarded
2010
Salary ranges frozen
Base salaries frozen
2009
No performance lump sums awarded
2008
Base salaries frozen
Note: USPS compensation does not include any COLA’s
For the past six years, the officer compensation system has not worked as designed because the Postal Service has
faced significant financial challenges caused in part by the ongoing decline of First-Class Mail, the economy, and
problems with its business model. The Postal Service has taken significant steps, described elsewhere in this report, 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
2013.
Within the confines of its legislative authority and the financial constraints confronting the Postal Service, 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.