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 believes that existing protections against layoff will not impair the ability of the Postal Service to "rightsize" its workforce in the near term. The Commission also believes it is critical for Postal Service management to ensure that future collective bargaining agreements provide the necessary flexibility to manage the size and deployment of the Postal Service workforce.

The Commission, however, was divided on the appropriateness of no-layoff provisions in future agreements between the Postal Service and its represented workforce.

In light of the potential of declining mail volumes, a majority of commissioners (6) believe that future Postal Service managers should have the flexibility to make necessary adjustments in the size of the workforce without the constraints imposed by these provisions. These commissioners note that protection against layoff is a benefit not available to other Federal employees, who are subject to Federal reduction-in-force requirements in the event there is no longer any work for them to perform. They also note that layoff protection is rare in the private sector today, as companies demand the flexibility to rightsize their workforces as market conditions warrant.

A majority of commissioners would therefore recommend that the 1970 Act be amended to require that future Postal Service employees (i.e., employees hired by the Postal Service after a change in the law) be covered by the same reduction-in-force rules as other Federal employees and to specify that this requirement may not be varied through the collective bargaining process. Under this approach, Postal Service workers hired before the change in the law could continue to enjoy layoff protection negotiated on their behalf through the collective bargaining process.

A minority of commissioners (3) believe that a statutory prohibition against the negotiation of no-layoff provisions protecting future Postal Service workers would undermine the authority of the new Board of Directors and would unnecessarily intrude into the collective bargaining process. The minority notes that Postal Service management has the ability today, and will continue to have the ability, to seek the removal of these provisions in future negotiations with the major Postal Service unions.

The minority also believes that job security is a legitimate subject of collective bargaining. In their view, specific circumstances may arise in which offering job security or no-layoff arrangements would demonstrably be in the best interests of the Postal Service. In addition, the minority notes that taking layoff protection off the negotiating table through an overriding statutory prohibition is inconsistent with the Commission’s approach to governance and its desire to expand the range of issues subject to collective bargaining between the Postal Service and its represented workforce. return to Table of contents

Comparability Analysis Should Bind Labor Negotiations

Finally, the Commission believes that the 1970 Act should be amended to establish that the comparability standard determined by the Postal Regulatory Board creates a ceiling over the negotiation and arbitration process. This limitation should be imposed immediately on the compensation of employees hired after the comparability analysis is completed, and gradually for existing employees, in the event that the Postal Regulatory Board determines a total compensation premium exists. Specifically, the Commission suggests that 39 U.S.C. § 1207(c)(2) be revised to read:

The arbitration board shall give the parties a full and fair hearing, including an opportunity to present evidence in support of their claims, and an opportunity to present their case in person, by counsel, or by other representative as they may elect. For existing employees, the arbitration board must consider the Postal Regulatory Board’s calculation of the total compensation premium and consider the Postal Regulatory Board’s deadline for eliminating the total compensation premium. For new employees, the arbitration board must apply the Postal Regulatory Board’s calculation of total compensation as a cap on total compensation.

Decisions of the arbitration board shall be conclusive and binding upon the parties. The arbitration board shall render its decision within 60 days after its appointment.

In effect, this recommendation would create a two-tiered system aimed at applying the discipline of a comparability standard to the collective bargaining process without unduly disrupting the relationship between management and current employees. For new workers hired after the comparability determination is made, its findings will immediately serve as a ceiling on total compensation. However, for existing employees, if the Postal Regulatory Board determines a compensation premium exists, then it will calculate the extent of the premium and set a reasonable timeframe for the Postal Service and unions to eliminate the disparity.

Because it is not the Commission’s intent to lower the real wages of existing employees, this timeframe should be long enough to permit achieving comparability over a period of years. However, to keep the process advancing, arbitrators should be required to consider the extent to which each proposal advances comparability in determining their award. In addition, the Postal Regulatory Board should be tasked with periodically reviewing both its initial determination and the Postal Service’s progress in eliminating any premium. Beyond that, how the Postal Service and the unions meet this goal within the Postal Regulatory Board’s timeframe shall remain flexible and be determined within the context of the collective bargaining process.

One inherent flaw in the current process, as it applies to the Postal Service, is the common knowledge among all parties that ratepayers can be asked to make up any deficit. This is hardly the case in the private sector, where management ultimately could plead for the parties’ mutual interest in the enterprise’s financial viability.

Having the Postal Regulatory Board’s comparability standard limit total compensation seeks to replicate this private-sector discipline. return to Table of contents

Addressing Significant Retiree Benefit Obligations

Nearly half a million Americans today are retired postal workers. As a result, pension and retiree health benefits alone comprise $6 billion of the annual $12 billion the Postal Service pays out in fringe benefits.16 As pension and health care costs skyrocket for all employers, the Postal Service is not alone in its need to manage this large liability effectively. Postal Service employees, too, have a stake in this effort. Particularly given the fact that more than 45% of the Postal Service’s career workforce is within a decade of the minimum retirement age (Exhibit 6-3), involving these benefits in the collective bargaining process will ensure that the health care needs of future postal retirees are adequately addressed as the Postal Service works to control and manage this large category of expense. return to Table of contents

Postal Service Owes the Public Complete Transparency

The Postal Service must also address the substantial benefits obligations its legacy systems have already accrued. In this arena, the Postal Service has a "good news, bad news" situation. The good news is that recently enacted legislation reduced the Postal Service’s unfunded liability for CSRS pension benefits (those covering employees hired before 1984) from $32.3 billion to $5.8 billion.17 The bad news, however, is that the Postal Service today continues to have an unfunded retiree health benefit obligation of about $48 billion.18

The difference in the fate of the two benefit funds is due to the fact that the pension obligation is funded as benefits are earned and recovered through rates, while the retiree health care obligation is funded on a "pay-as-you-go" basis that focuses on obligations due today rather than the larger figure of obligations earned by and owed to employees today. The Commission wishes to make clear that the Postal Service’s independent auditor has indicated that such an approach is in compliance with current applicable accounting standards governing the reporting of retiree health care costs. Putting aside these standards, however, the Commission believes that the Postal Service should strive for complete transparency. As a result, it strongly encourages the new Board of Directors to revisit this issue in terms of the public’s "right to know" the fiscal health of its public institutions and to formally acknowledge the full extent of this sizable obligation in its financial statements. The Commission further suggests that, if the financial condition of the Postal Service improves, the Board of Directors consider funding a reserve account to begin paying down this obligation, so future ratepayers are not forced to pay for postal services delivered to the nation today. return to Table of contents

Taxpayers, Not Ratepayers, Should Finance Military Pensions

With regard to the CSRS pension fund surplus, President Bush in April signed into law the Postal Civil Service Retirement System Funding Reform Act (Public Law 108-18), which lowered the Postal Service’s annual contribution to fund its remaining liability. Because the old statutory funding formula required higher payments that would have eventually resulted in the Postal Service overfunding its CSRS obligations, the new formula will translate into about $3 billion in available revenues in 2003, which are being used to pay down a sizable portion of the Postal Service’s debt owed to the Department of the Treasury.

This legislation was a positive step. However, included in the law permitting the Postal Service to adjust its pension contributions was language requiring the Postal Service to fund the CSRS retirement benefits of its employees that were earned while serving in the U.S. military. The cumulative cost to the Postal Service of funding the military service component of its CSRS retirees’ pension payments has been estimated by the GAO to be $27.9 billion.19

As explained by the Office of Personnel Management ("OPM") during Congressional hearings on this legislation, it has been standard practice for all Federal agencies to cover the total actual pension costs of their retirees under FERS since its inception in 1984. OPM noted that contributions made by Federal agencies for their retirees under CSRS have always been handled differently, with many agency contributions (such as those made by the Postal Service) being calculated based on legislative mandates that are not linked to actual costs. OPM viewed the bill that was later enacted as P.L. 108-18 as an opportunity to make future Postal Service CSRS contributions incorporate all retirement liabilities associated with Postal Service retirees, as well as all payments and earnings. In OPM’s view, this approach simply made Postal Service contributions for CSRS costs consistent with those it makes for costs under FERS.

The Commission understands the OPM position, but does not agree with the application of this approach to the Postal Service. While the approach may be standard practice for all Federal agencies under FERS, the Commission notes that P.L. 108-18 only applies this standard to the Postal Service. No other Federal agency is required to pay such costs for its retirees under CSRS. In the Commission’s view, it is inappropriate to require the Postal Service, as a self-financing entity that is charged with operating as business, to fund costs that would not be borne by any private-sector corporation (costs associated with benefits earned while the retiree was employed by another employer). In addition, requiring Federal agencies financed through Congressional appropriations to cover the military retirement benefits of its employees still ultimately taps resources from the same appropriate revenue source—taxpayers. Requiring a self-financing Federal entity to follow suit is wholly different. It asks those who use the nation’s postal system to subsidize the U.S. military every time they use the mail.

The Commission recommends repeal of this requirement. Fortunately, by directing the Postal Service, the Department of the Treasury, and OPM to submit proposals regarding the funding of military benefits of postal employees, P.L. 108-18 provides the basis for Congress to revisit the issue.

The Commission supports returning responsibility for this portion of retiree benefits to the Department of the Treasury, where it resided before the recent legislation, and where this liability can be financed through funds generated by taxpayers.

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Building an Incentive-Based Culture of Excellence

With a stronger collective bargaining process in place that permits the Postal Service to address the entire compensation equation, it is equally important that Postal Service management acknowledge that employee morale is vital to the success of any service-oriented enterprise. This is especially true at such a defining moment for the Postal Service, when substantial productivity gains and significant realignment of the workforce are needed to ensure the institution’s continued ability to fulfill its mission of universal service at affordable rates.

To address employee job satisfaction and motivate the workforce behind broad institutional goals, the Postal Service has some significant repair work to do in order to strengthen the management-employee relationship. Central to this effort is substantially reducing the backlog of employee grievances pending arbitration and getting at the root cause of the unusually high volume of complaints. After the repair work is done, the Postal Service needs to build a well-designed incentive compensation program that goes beyond the upper ranks of management and makes all employees meaningful participants in the Postal Service’s success.

Last but not least, in light of its businesslike orientation, the Postal Service should be permitted to offer attractive and competitive salaries that can assist in recruiting and retaining top-level business leadership that is necessary to guide the Postal Service to a higher standard of excellence and value to the nation. return to Table of contents