The USPS Board of Governors announced at their December 3rd meeting that the Postal Service lost $1.7 billion for the fiscal year just completed. The Service is also presently seeking a taxpayer bailout from Congress of more than $5 billion. Nevertheless, the Board voted at its recent meeting to authorize $164 million in controversial “pay-for-performance” bonuses for Postal Management.
While this alone could be expected to cause a firestorm in Congress, a new report by the Inspector General for the Postal Service issued on December 5th is sure to be the subject of future Congressional Hearings. The Inspector General declared the EVA Pay-For-Performance methodology, which is used to determine the size and appropriateness of the bonuses, as inappropriate for a Government monopoly like the Postal Service and called for its replacement by an alternative. Not surprisingly, Postal executives do not concur in the IG’s troubling findings.
Postal Management has every reason to prefer the present bonus system since, as reported by the IG Report, the bonuses paid since FY1997 are due exclusively to the “net inflation factor” added to the formula starting in FY1998. This net inflation factor rewards Postal Management with bonuses for holding the rate of increase of postage rates below the rate of inflation in the economy at large, regardless of the financial consequences for the Service.
Not surprisingly, the Postal Service had declining productivity in four of the five years following the inclusion of the net inflation factor in the bonus formula. Postal Management’s disregard for financial consequences was underscored when it removed achievement of a positive net income as a goal to qualify for a bonus for FY2001. This was an important change, since in addition to losses in FY2000 and FY2001, the Service is expecting to loss an additional $2 billion in FY2002.
If productivity cannot be improved sufficiently, a resolution of the Service’s deficit problem will require postage increases substantially above the rate of inflation. But would Postal Management lose their bonuses? Not necessarily, since as the IG report reveals, the full benefit of postage increases is also included in the EVA bonus formula. In other words, Postal Management is playing poker with a marked deck. A nice deal if you can get it.
— Charles Guy, Ph.D., is the former Director, Office of Economics, Strategic Planning, U.S. Postal Service.
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