US Postal Service 2014 Annual Report Download - page 76

2014 Report on Form 10-K United States Postal Service 72
Overall Performance Rating
Adjective Rating
Number rating
Exceptional Contributor (EC)
13, 14, 15
High Contributor (HC)
10, 11, 12
Contributor (C)
4 to 9
Non Contributor (NC)
1, 2, 3
The officer compensation system has not functioned as designed for the past seven years, due to the Postal Service’s economic
challenges. The system is supposed to operate as follows: An individual executive officer’s performance rating would make the
officer eligible for an increase to base salary, as well as for a performance-based lump sum payment. Due to statutory cap
limitations, increases to the maximum of the salary range for executive officers would generally follow the percentage increase
to the Executive Schedule for any given year. Any salary increases for executive officers are limited by these maximums and are
solely performance based, as determined by the Postmaster General. Lump sum incentive payments would be tied to the
Postmaster General’s rating of the executive officer’s performance and multiplied by a range of 1.33% to 2.50%, based on the
degree to which the individual has achieved previously set individual goals and metrics. The Postmaster General’s discretion on
PFP incentives for executive officers in a given year is limited by the Postal Service’s overall performance on NPA goals and
metrics. Generally, officer performance scores must average to the Postal Service’s overall NPA performance score for the fiscal
year.
Salary increases, if any, are determined after the end of the fiscal year, and any new salaries become effective for the following
calendar year. In making compensation decisions for Fiscal Year 2014, the Governors noted that management achieved very
significant accomplishments in addressing the many challenges the Postal Service faced in the fiscal year. Despite a significant
continuing decline in First-Class Mail volume over the past several years, management continued to take aggressive actions
within its control to reduce costs, provide excellent service and secure revenue. Despite declining First-Class Mail volume,
package volume increased during Fiscal Year 2014. Management improved total factor productivity by reducing the workforce,
as well as through a number of other process improvement efforts. In addition to maintaining high levels of service,
management also maintained employee satisfaction, introduced a number of new products and services, increased customer
access and offered mailers pricing incentives to help stem the volume decline. Management continued to streamline operations,
closing a number of facilities and beginning implementation of consolidations and other steps to optimize network and retail
operations. Among these efforts was the continued implementation of the POSt Plan, which is designed to ensure that post
offices remain open where and when they are needed, as well as planning for five-day delivery service. The Governors also
noted that the Postal Service received an unqualified opinion from its independent registered public accounting firm as to the
effectiveness of internal controls. Finally, management also took significant actions to pursue legislative reform in areas key to
the Postal Service’s ability to provide universal service in the future.
Despite the many significant accomplishments of the Postal Service’s management team during Fiscal Year 2014, the Governors
largely based their decisions on compensation on the fact that the Postal Service continues to face significant financial
challenges. While these financial challenges result in part from the decline in First-Class mail, the Governors noted that
comprehensive legislative change is needed to enable the Postal Service to return to financial stability. The absence of
legislative change has had, and will continue to have, a significant negative impact on Postal Service finances. Given the Postal
Service’s financial challenges, the Governors approved a minimal 1% salary increase for officers for Calendar Year 2014. In
addition, some non-executive officers received financial awards in Fiscal Year 2014 for outstanding performance on particular
strategic projects.
Components of the executive officer compensation and benefits program are further outlined below.
Base Salary
Base salaries provide a level of financial security that is appropriate for the executive’s position within the Postal Service.
Within the confines of law and the Postal Service’s difficult financial condition, base salaries are to be scaled within pay ranges
designed to be competitive with the market median. As discussed above, maximum payouts in a given year are set by federal
law. Executive officer salaries are reviewed at least annually and adjusted, as appropriate and when permitted by financial
constraints, to reflect individual performance, range of responsibilities, value and contribution to the organization, and
experience. However, as discussed above, officer salaries have been frozen for five out of the last seven years, with a minimal
increase occurring in Calendar Year 2014.