A change by the U.S. Postal Service three years ago in the way it calculates its year-end performance program for executives assured them of $805 million in payments over the past three years, according to a report from the postal service's Office of the Inspector General.
The report said that the postal service switched to a “value-added system” used by for-profit companies five years ago. The new system adjusted figures for inflation and was not appropriate for the postal service, which is under a congressional mandate to break even.
The report said that postal management realized that the USPS would not generate adequate revenue to cover its costs and still have money left to finance the incentive program. As a result, it added the inflation adjustment. The inspector general called the action not appropriate and called for immediate changes in the pay plan.
“We recommend that management establish an alternative method for funding the pay for performance program that fits the USPS' breakeven operating the environment,” the report said.
In the most recent performance awards, the agency said this month that it would pay $164 million to its top 83,461 executives, despite a loss of $1.7 billion in the just-ended fiscal year. The payments will average $2,200 per participant, and the average salary of employees eligible for the year-end payments is $51,100.
Postal officials strongly defended the payments, saying they go to executives, managers and postmasters who have forgone regular pay increases. Gerry Kreienkamp, a USPS spokesman, also said the agency disagrees with the inspector general's analysis of how the inflation indexing worked.
“We believe the funding is appropriate under our break-even operating environment,” he said.
Kreienkamp also said that the program has produced $520 million in savings for the agency because the executives no longer receive the annual raises, locality adjustments and in-grade step increases provided other federal employees.
Kreienkamp said that the indexing also means postal managers do not benefit from increases in stamp prices.
Still, Kreienkamp said that the USPS is currently working to establish another method of funding executive bonuses, including individual performance plans.
“We're looking at how can we do this better, make this work better, so that people understand and these misconceptions don't continue,” he said. “We have been in consultation with our postmaster groups and our supervisors associations on what else we can do.”