US Postal Service 2015 Annual Report Download - page 67

2015 Report on Form 10-K United States Postal Service 65
With the approval of the Board, we may develop a program to award a bonus or other reward in excess of the compensation
cap discussed above, as long as the total compensation paid to the officer in a year does not “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). In calendar year 2015, this cap rose 1% to $235,300. 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 impacted employees makes meaningful distinctions based on relative performance.
In addition, the Board may allow up to 12 of our officers or employees 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 2015, the compensation cap for calendar year 2015 was $282,360.
By law, our employees, including executive officers, are entitled to participate in either the CSRS or FERS, depending on
when their federal employment began. As applicable to our officers, 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, our policy also authorizes certain additional benefits for all of our officers,
including executive officers. These include participation in FEHB, 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 a significant disconnect exists between the comparability requirement and the compensation caps
in our governing law and that the various compensation caps do not enable the Board to provide compensation and benefits
for executive officers that are fully comparable to those in the private sector. This is especially true given our 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 our employees given our status as part of the federal government. These limitations
make it more difficult for us to competitively recruit 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 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, and because of the compensation caps, a portion of this compensation might need to be deferred. The
compensation system has not functioned as originally intended in that significant performance-based incentives have not
generally been available to our officers since 2008.
For the past eight years, our officer compensation system has not worked as designed because we have faced significant
financial challenges caused in part by the problems with our business model. We have taken significant steps, described
elsewhere in this report, to reduce costs and generate revenue. However, we have sought and continue to need comprehensive
legislative change to have much greater flexibility to reduce costs, generate new revenue and return to financial stability.
At the start of calendar year 2015, the compensation system operated pursuant to its terms, and eligible officers received an
increase in their basic compensation and a performance lump sum payment. The increases in basic compensation in fiscal
year 2015 were dependent upon performance, and averaged 3%. The amount of the performance lump sum payments issued
in fiscal year 2015 was again based upon performance, and averaged 4%. Further, some non-executive officers received
additional financial awards in fiscal year 2015 for outstanding performance on particular strategic projects in fiscal year 2014.
However, our financial performance, and therefore our performance-based incentive payment system, continues to be
negatively impacted by our flawed business model which can only be corrected through comprehensive postal reform
legislation. Uncertainty about future payments and the viability of the compensation system continues to negatively impact
retention and recruitment.
The increase in basic compensation in calendar year 2015 was preceded by a 1% increase in calendar year 2014 and six
consecutive years before 2014 in which officer compensation was impacted by a freeze in salary and/or a non-payment of
performance lump sums. By comparison, employees of other U.S. government entities only experienced a pay freeze for three
years from 2011 through 2013. Employees of other U.S. government employers received a 1% increase in their basic
compensation in calendar year 2014 and a 1% increase in their basic compensation in calendar year 2015, in addition to step
increases and available awards. Furthermore the U.S. government pay freeze applied only to COLAs and not to longevity
(step-increase) raises or performance awards.