A few highlights of USPS 10-K Report 2010 released today:
At September 30, 2010, we had 583,908 career employees and 87,779 non-career employees, substantially all of whom reside in the U.S.
The Postal Service incurred a net loss of $8,505 million for the year ended September 30, 2010. This followed net losses of $3,794 million in 2009 and $2,806 million in 2008. A significant portion of these losses are attributed to the unprecedented declines in mail volume in 2008, 2009, and 2010, combined with the cost of pre-funding retiree health benefits as mandated by P.L. 109-435.
Mail volume fell by 6.2 billion pieces in 2010, resulting in a $1,038 million, or 1.5%, decrease in revenue compared to 2009. In 2009, mail volume decreased 26.0 billion pieces, resulting in a $6,842 million, or 9.1%, decrease in revenue compared to 2008. The declines in mail volume that began in 2008 are primarily the result of the economic recession that began in December 2007, combined with the long-term trend of hard copy correspondence and transactions migrating to electronic media. This migration to electronic media accelerated during the recession and is expected to continue.
USAGE OF FACILITIES
Facilities that support postal retail and delivery operations are located in virtually every community throughout the country. In addition to the 32,528 retail and delivery facilities that we manage and operate, postal retail services are available in thousands of commercial locations owned and operated by private businesses. These include more than 3,000 Contract Postal Units and Community Post Offices and over 63,000 supermarkets, pharmacies, and other stores that sell postage stamps as a convenience to their customers.
Total work hours in 2010 of 1,183 million hours decreased by 75 million, or 6.0%, from 1,258 million work hours in 2009. Work hours in 2009 decreased an unprecedented 115 million hours from the 2008 total of 1,373 million hours, which was 50 million hours less than the 2007 total of 1,423 million hours. Contributing to these reductions were the previously noted incentives paid to 20,800 employees who elected to retire or resign during Quarter IV, 2009 and Quarter I, 2010. Another management initiative which contributed to the reduction was the adjustment of delivery routes that was initiated in response to the decline in mail volume.
Work hours decreased in all major functions in 2010 compared to 2009: city delivery declined by 16 million hours; rural delivery declined by 4 million hours; customer service declined by 18 million hours; and mail processing declined by 27 million hours. Total work hours decreased in 2010 despite the addition of approximately 740,000 delivery points. Rural delivery hours decreased in 2010 despite the addition of over 387,000 new rural delivery points. The decreases reflect delivery optimization initiatives and the reduction in mail volume from the previous year. Although the total number of new delivery points increased in 2010, the growth rate was significantly lower in 2010 as compared to 2009. This is a direct reflection of the weak economy, with lower housing starts and sales.
As shown in the following chart and consistent with last year, in 2010 the rate of reduction in work hours has exceeded the rate of decline in mail volume in every category except rural delivery and postmasters. Rural delivery is where most of the delivery point growth is while postmasters represent mostly fixed costs. We continually strive to optimize the use of personnel and minimize variable costs. The challenge that remains is to reduce the fixed costs. This will include structural changes, many of which require legislative or regulatory approval
Our 2009 work hours decreased by 115 million hours, partially offsetting higher labor rates. The unprecedented 115 million, or 8.4%, decrease in work hours resulted in large part from lower mail volume. Management initiatives and delivery route adjustments, initiated in response to the decline in workload, contributed to these reductions. Work hours decreased in all major functions.
Compensation for postal executive officers is significantly below that of the private sector. As explained later, an independent consulting firm retained by the Board found USPS executive base salaries continue to remain well below market when compared against published survey data of comparable jobs in the private sector. The most recent assessment using 2010 data indicates that USPS executive salaries have continued to erode further over the past twelve months.
For calendar year 2010, after reviewing recommendations from the Postmaster General and the Compensation Committee, the Board increased salary ranges by 1.5%, in line with the increase for the Federal Government’s executive schedule. The Board authorized salary increases within these ranges based on organizational and individual performance in addressing the Postal Service’s significant challenges/
Salary increases, if any, are determined after the end of the fiscal year and any new salaries become effective for the following calendar year. Although management achieved very significant accomplishments in addressing the many challenges the Postal Service faced in Fiscal Year 2010, the Governors determined that salaries should be frozen in calendar year 2011 in light of the Postal Service’s financial challenges. The Postmaster General, with the approval of the Governors, determined that performance incentives should be paid for Fiscal Year 2010 for the other named executive officers. These incentives were based on the named executive officers’ individual achievements and contributions to address the overall challenges the Postal Service faced in Fiscal Year 2010. The Governors noted that, despite the significant downturn in mail volumes over the past several years, management achieved very high total factor productivity, more than doubling the score achieved 10 years ago. Postal management achieved this very high total factor productivity score by reducing the workforce, overtime, and supplier expenses, as well as through a number of other process improvement efforts. Of equal importance, management maintained high levels of service and employee satisfaction, increased customer access to products and services and offered mailers pricing incentives to help stem the volume decline.
The Governors determined that the Postmaster General’s salary will increase, effective January 2011, to the maximum allowed by the statutory compensation cap. Even with this increase, the Postmaster General’s compensation will continue to be significantly below that of chief executive officers in the private sector who have comparable responsibility. The Governors also awarded incentive compensation to the Postmaster General based on his achievement of personal goals set by the Governors and in accordance with his contract.
OTHER COMPENSATION INCENTIVES
Executive officers are also eligible for performance awards for specific activities that reflect a high degree of leadership. Only a small number of these individual awards are given out each year. In addition, executive officers are eligible for retention and recruitment incentives designed to attract and retain highly talented and marketable individuals in key postal positions. The payment of some of these awards may be deferred, in whole or in part, due to the Postal Service’s compensation limits.