Chapter 6: Aligning People with Progress: Building a 21st Century Postal Service Workforce Source: Postal Commission Final Report on USPS 

Table of Contents

• Introduction
• Background
• The Postal Service Pays More than 76% of its Revenues to Employees
• Improve, Rather than Overhaul, Tools Available to Manage Workforce
• Toward More Constructive Collective Bargaining
• A New, Time-Sensitive Approach to Arbitration
• Making the Collective Bargaining Process Work Better
• Comparability Must Cover Total Compensation
• Compensation Premium Debate Requires Independent Resolution
• Comparability Analysis Should Bind Labor Negotiations
• Addressing Significant Retiree Benefit Obligations
• Postal Service Owes the Public Complete Transparency
• Taxpayers, Not Ratepayers, Should Finance Military Pensions
• Building an Incentive-Based Culture of Excellence
• Reducing Grievances
• Pay-for-Performance Incentives
• Executive Compensation
• Rein in Workers’ Compensation Liabilities
• Management Ranks Need to be Thinned, Too
• Conclusion
• Chapter 6 Recommendations*

• Dissenting Statement of Commission Report by Commissioner Norman Seabrook

The Commission notes the encouraging progress being made by the National Association of Letter Carriers. The union and the Postal Service recently completed the first totally restructured and streamlined grievance procedures for any postal union in 23 years. After only one year, its pilot phase resulted in 78% of grievances being resolved locally and a 65% decline in appeals. And, as of July 2003, the backlog of pending grievances was down 74% since 1998. The Commission believes that Postal Service managers should work aggressively to establish similar productive agreements and relationships with the other employee unions.

By resolving more disputes at the local level, reducing the number of steps involved before a case goes to arbitration and establishing a common understanding between the Postal Service and the union with regard to key contract provisions, the NALC process aims both to resolve individual grievances quickly and locally and also to foster awareness among all parties of what, precisely, the work rules and other contract stipulations are in order to prevent future disputes.

Given the success of these reforms, the Commission believes that a concerted effort to establish similar agreements with the other major postal unions should be a primary objective. The Commission suggests that the Postal Service establish pilot programs with the following attributes:

For such programs to be successful, it is imperative that the Postal Service give clear direction that settlement of problems and cooperative labor-management relations are a priority. Additionally, it must hold managers accountable for behavior that results in poor labor-management relations.

Any long-term reform of the dispute resolution process will require cooperation between the Postal Service and its unions. It will take time and effort, but the results, both in financial terms and in employee morale, will pay huge dividends to the institution and its ability to serve the nation. Satisfied employees are of far more value to the nation’s postal endeavor than those in a contentious relationship with their employers. Addressing an unworkable grievance system and the climate that has created it is the first necessary step to establishing an incentive-based culture of excellence.

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Pay-for-Performance Incentives

Performance-based compensation programs, designed correctly, are a valuable tool for aligning the goals of employees with an institution’s mission-critical performance targets. With its large employee base, as well as its service and business orientations, the Postal Service is ideally positioned to reap the benefits of a well-designed and well-executed incentive compensation program. Toward that end, the Commission recommends that the Postal Service undertake a careful study of performance-based compensation, for both management and represented employees, and that it work with the unions and management associations to design and implement a pay-for performance initiative that is meaningful to employees and capable of taking the Postal Service to a higher level of operational efficiency, productivity and quality.

While the Postal Service has attempted to implement performance-based compensation programs in the past, these efforts have often run into challenges. Two years ago, the Economic Value Added Variable Pay Program and related Merit Pay Program were terminated amid political criticism. On the merits, the six-year effort appears to have been effective in focusing management on preventing workplace injuries, increasing productivity, improving on-time delivery and even reducing by 5% compensation costs as a percentage of Postal Service operating expenses. The effort eliminated cost-of-living and other standard pay increases for its top 83,000 employees, requiring instead that each manager earn any pay increase through performance.

While the program was attacked for handing out more than $1 billion to Postal Service managers, it is worth noting that canceling automatic pay increases saved $2.4 billion.

The initiative’s shortcoming? It failed to involve the workforce as a whole. In fairness to the Postal Service, however, the notion of variable pay based on performance is frequently opposed by some union leaders. Earlier this year, the Postal Service began the National Performance Assessment, which relies on a balanced scorecard approach that links objective measures such as customer service, employee productivity and business productivity with compensation. While the focus again is on top managers, the Postal Service has plans to expand the program in 2004. The Commission urges union leadership to reconsider such initiatives and their ability to enhance the compensation of the represented workforce.

In a large organization in need of significant realignment, productivity gains and high-quality service, performance-based compensation can offer meaningful incentives to align the interests of workers with the specific performance goals of the institution as a whole. The Commission believes that developing and properly designing such a plan can serve as a powerful communications and motivational tool, helping employees understand how they can contribute to the organization’s financial health and success—and be rewarded for their effort.

In crafting its program, the Commission recommends that the Postal Service emphasize the following "best practice" features: 1) effective alignment of strategic priorities with desired employee behavior; 2) a simple plan design; 3) clear communication of the plan to employees; 4) a credible and reliable measurement process; 5) proper integration of the plan with workplace processes and systems; and 6) reasonable assurances that the plan will pay for itself through improved productivity.22

The Commission also encourages the Postal Service and its unions to think broadly in terms of incentives. For example, employees represented by the National Rural Letter Carriers’ Association today enjoy a very effective non-monetary incentive—an evaluated route process in which rural carriers are compensated for completing a set route, no matter how quickly and efficiently they get the job done.23 This approach benefits both parties. It limits overtime costs to the Postal Service (the root cause of many carrier-related grievances), and it rewards productive workers, compensating them equally for performing their route in five hours, for example, as they would have been paid for eight hours of work. In other words, if they beat the "evaluated time" for their route, they are not penalized financially for doing so. The Postal Service should consider similar approaches with employees represented by its other unions.

If the Postal Service is to have the businesslike capacity to nimbly adapt to change, then the entire postal workforce should be eligible for some form of incentive compensation that gives them an additional financial stake in the success of the enterprise. The use of incentive compensation has proven a very effective tool in aligning workers with an institution’s productivity, efficiency and service goals. With respect to the Postal Service, a positive, constructive, motivating compensation structure is critical to building a less confrontational and more cooperative employee management culture, one that consistently strives for excellence. In short, by giving every employee a personal stake in the success of the Postal Service, that success becomes far more attainable.

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Executive Compensation

While the 1970 Act calls for pay comparability for both managers and represented employees, it also includes a salary cap. As a consequence, executive compensation is nowhere near that of corporate leaders running comparably large enterprises. While it is not feasible that Postal Service executive compensation rival its private-sector counterparts, it is the Commission’s view that top managers’ pay should move significantly in that direction, with the caveat that it be closely tied to key performance measures for the Postal Service overall.

As a consequence, the Commission recommends repeal of the Federal salary cap as it applies to the Postal Service (currently $171,900) and that the Board of Directors be authorized to establish rates of pay for top Postal Service officers and employees that are competitive with the private sector. Many Federal entities requiring a capable, experienced CEO and other top officers to ensure the quality and continuity of operations already have such authority. These entities include the Tennessee Valley Authority, the Federal Reserve Board, the Public Company Accounting Oversight Board and the Federal Home Loan Banks.24

Without such a move, the result is a compression of salaries at the top, leaving little financial incentive for top employees to take on new levels of responsibility or to perform at "break-through" levels. This cap also presents a significant recruiting and retention challenge for the top leadership posts.

When compared to wages paid for similar private-sector positions, and even other self financing government enterprises, the Postal Service simply cannot compete in attracting and retaining key managers who are capable of lifting the enterprise to new levels of performance and service. The cap should be lifted and the Board should have the discretion to set compensation to attract and retain qualified individuals in key leadership posts.

As noted in Chapter 3, the Commission believes that executive pay must be tied directly to performance, and has recommended that the new Board establish a Compensation Committee that would develop a compensation system that delivers that result.