US Postal Service 2014 Annual Report Download - page 73

2014 Report on Form 10-K United States Postal Service 69
been frozen for four years. The Board may approve a program allowing for bonuses or other rewards if it determines, for the
annual appraisal period involved, that the performance appraisal system for affected employees 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 Year 2014, this compensation cap was $279,600 for Calendar Year
2014.
By law, Postal Service 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 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 more 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. At the start of Calendar Year 2014, officers received a
1% increase in their basic compensation. This 1% increase was preceded by six consecutive years in which officer
compensation was impacted by a freeze in salary and/or a non-payment of performance lump sums, as listed more specifically
below. In addition, some non-executive officers received financial awards in Fiscal Year 2014 for outstanding performance on
particular strategic projects in Fiscal Year 2013. 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. In 2014, federal employees received a 1% general increase, in addition
to step increases and available performance awards.