# Presentation: 661184

**United States Postal Service **
**Presentation at the **
**Strategic Compensation Conference**
**Washington, DC**
**August 29, 2000**

**1**

## OUTLINE

**How determine right for USPS?**
**What decisions are involved?**
**How implemented?**
**Could you benefit?**

**2**

## HOW DETERMINE VARIABLE RIGHT?

**Statutory compensation mandate?**
**Economics of “new pay”?**
**Organizational climate?**

**3**

## LEGAL MANDATE

**Postal Reorganization Act (Title 39)**
**Comparability to the private sector**
**Level I of Executive Schedule**
**Collective bargaining**
**Pay consultations**

**4**

## LEGAL MANDATE (cont.)

**Required federal            compensation**
**Retirement system**
**Unemployment comp.**
**Workers’ comp.**
**TCOLA**

**5**

## LEGAL MANDATE (cont.)

**Voluntary federal           compensation**
**Health (USPS rates)**
**Life (USPS rates)**
**Leave (USPS rules)**

**6**

## ECONOMICS OF NEW PAY

## ORGANIZATIONAL CLIMATE

**Then:**** financial crisis**
**Helping the federal deficit**
**Compensation not comparable  to private sector**
**Pay not related to performance**

**8**

## 1995 MARKET STUDIES 

**1995 MARKET STUDIES **

**9**

**Notes:**
This slide shows graphically the wage premiums over private sector levels.  For clerks and carriers the wage premium is 22%.  Mail handlers have a 40% wage premium.  EAS employees are on average 14% above private sector levels.

## 1995 MARKET STUDIES 

**14%**

**1995 MARKET STUDIES **

**10**

**Notes:**
One of the reasons that we used a different methodology for the EAS employees was that there is a wider range of jobs in the EAS structure.
Even though the average EAS salary premium was 14% in 1995, it varied considerably among the EAS pay grades.  
The percentage was much higher at the lower grades, and tapered down to a level that was equal to or lower than the private sector in the higher grades.
George Jones is going to talk with you on Thursday about the EAS pay system, and discuss the rationale for the major changes that occurred in 1996.

## MARKET STUDIES OF BENEFITS

**18%**

**MARKET STUDIES OF BENEFITS**

**11**

**Notes:**
Another feature of the 1995 Hay Study was a better picture of how our benefit plans stacked up against the private sector.  Hay determined that our benefit plans on average were 18% greater than private sector plans.

Specifically, our life insurance, retirement, and annual leave policies were considerably richer than private sector plans.  Health care and sick leave fell within a competitive range, as did our statutory benefits like Social Security and Medicare benefits.  There were a lot of little benefit plans and perks that the private sector provided that were greater than the Postal Service, but on average, they were swamped by the higher value of our retirement and annual leave policies.

(If anyone asks about the Other category below the line, “This reflects a variety of small benefits and perks prevalent in the private sector, like company cars, legal services, country club memberships, etc.”)

## ORGANIZATIONAL CLIMATE

**Now:**** strategic focus**
**Economic value added**
**Quality focus**
**Pay for performance**

**12**

## WHO HAS PAY FOR PERF?

**Management employees**
**Merit pay program**
**Variable pay program**
**Recognition program**

**13**

## WHO HAS PAY FOR PERF?

**Craft employees**
**Recognition program**
**Ideas (suggestion) program**

**14**

## WHAT DECISIONS INVOLVED?

**Variable pay objectives?**
**Variable pay basic design?**
**Balance focus?**
**Employee concerns?**

**15**

## VARIABLE PAY OBJECTIVES

**Drive organizational behavior**
**Make employees stakeholders **
**Drive continuous improvement**
**Focus on short and long term results**** **

**16**

**Notes:**
Group incentive plans are a commonly accepted method of driving organizational behavior in the private sector.  
Positive credits are made when financial results are positive and negative credits are possible if financial performance is negative, thereby making employees stakeholders in the organization’s success.  
Since awards are made in lump sum payments, they are not added to base salaries, nor become ongoing costs to the Postal Service.  They have to be earned each year through continuous improvement.  
We also need employees to make decisions based on both the short and long run.  The Reserve Account takes a portion of each year’s credits and puts it at risk in future years.
Based on the successful financial and service performance of the Postal Service in FY 1996 and 1997, the EVA Variable Pay Program appears to have a significant influence.

## VARIABLE PAY BASIC DESIGN

**Team-based group incentive program**
**Funded by Economic Value Added (EVA) financial performance**
**Credit based on achieving unit goals**
**Reserve Account allows pay-at-risk; promotes continuous improvement**

**17**

**Notes:**
The basic design features are simple.  The program is funded by national financial performance as measured by Economic Value Added (EVA), and depends on achievement of all CustomerPerfect! goals to grant full credit to participants.  To encourage continuous improvement and long term success, a Reserve Account is used to put a portion of current awards at risk based on future organizational performance.

## BALANCED FOCUS

**18**

**Notes:**
The program provides a balanced focus on organizational goals.  One third weight is given to each set of goals under the Voice of the Customer, the Voice of the Employee and the Voice of the Business.

If a goal is not achieved, then the credit will be reduced by the appropriate percentage for the goal.

## EMPLOYEE CONCERNS

**Base pay differential between craft and supervisors/postmasters**
**Treatment of excluded or unacceptable employees**
**Different sharing factors under VPP**
**VPP not added to retirement income**

**19**

## HOW IMPLEMENTED?

**Employee mailings - example**
**Company newsletters**
**Association newsletters**
**Satellite TV training/shows**
**Training videos - example**
**Intranet home page**

**20**

## COULD YOU BENEFIT?

**COULD YOU BENEFIT?**

**Customer results**
**Employee results**
**Business results**
**Labor intensity**
**Payment history**

**21**

## WHAT HAVE WE ACHIEVED?

**EXFC OVERNIGHT: ANNUAL ON-TIME SCORES**

**Start of Variable Pay Program**

**22**

**Notes:**
As evidence of the impact that our quality and value-added focus has had on organizational results, I would like to share with you tangible results under several key performance indicators .

Under our Voice of the Customer, we measure on-time delivery performance for first class mail committed to overnight delivery.

In the early 90s, we were meeting these commitments about 82% to 83% of the time.

With the implementation of the Variable Pay Program and other quality and value-added strategies, that performance has steadily improved to over 93% of the time.

## WHAT HAVE WE ACHIEVED?

**WHAT HAVE WE ACHIEVED?**

**LOST WORKDAY INJURIES PER 200,000 WORKHOURS**

**Start of Variable Pay Program**

**23**

**Notes:**
A key performance indicator under our Voice of the Employee is our Lost Workday Injury safety rate.

In the early 90’s, our performance was headed in the wrong direction.

Like the previous measure, since the implementation of the Variable Pay Program the rate has been steadily dropping.

## WHAT HAVE WE ACHIEVED?

**NET INCOME**

**Net Income**

**Years**

**Start of Variable Pay Program**

**24**

**Notes:**
Under our Voice of the Business focus, one measure of financial performance is net income.

As you can see from this chart, financial performance has made a dramatic turnaround from negative net income in the early 90s to positive net income since 1995.

## WHAT HAVE WE ACHIEVED?

**NET INCOME**

**Net Income**

**Years**

**Start of Variable Pay Program**

**25**

**Notes:**
If you look at the net income over a longer period of time, since the 1970 Postal Reorganization Act, the financial performance turnaround since 1995 is even more dramatic.  

## WHAT HAVE WE ACHIEVED?

**LABOR INTENSITY**

**Start of Variable Pay Program**

**26**

## WHAT HAVE WE ACHIEVED?

**WHAT HAVE WE ACHIEVED?**

**AVERAGE PERCENT PAYMENTS**

**Start of Variable Pay Program**

**27**

**Notes:**
The dramatic performance improvement was accompanied by dramatic increases in our group incentive payments.

Prior to 1995, our executives received up to about 2% in group incentives.  In 1995 that shot up to 12% and has stayed at a high level since then.

Our non-executive employee have also received notably higher group incentive awards since 1995.