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United States Postal Service
Pay-For-Performance
Program
Paul Weatherhead,
Program Manager
April 21, 2005
1
USPS Pay-For-Performance
What’s Up With The US Postal Service?
“ … service in all measured
categories reached record levels …
a record fifth straight year of
positive total factor productivity …
eliminated $1.5 billion in costs …
significant increases in safety and
employee satisfaction …”
-- 2004 Annual Report
2
USPS Pay-For-Performance
What’s Up With The US Postal Service?
“ A few agencies have pioneered
results-oriented performance
management. … The real leader is
the U.S. Postal Service. … The
results of the Postal Service’s
variable pay plan have been
dramatic.”
-- Government Executive
Magazine
3
USPS Pay-For-Performance
Presentation Agenda
What have we achieved?
USPS business model
Design foundation
Performance evaluation
Pay actions
FY 2004 results & ratings
4
What Have
We
Achieved?
5
WHAT HAVE WE ACHIEVED?
On-Time Delivery of First Class Mail
Overnight Commitment
100%
Percent On Time
95%
90%
85%
80%
75%
92 93 94 95 96 97 98 99 00 01 02 03 04
Fiscal Year
EVA PFP
6
WHAT HAVE WE ACHIEVED?
On-Time Delivery of First Class Mail
Two-Day Commitment
95%
Percent On Time
90%
85%
80%
75%
70%
92 93 94 95 96 97 98 99 00 01 02 03 04
Fiscal Year
EVA PFP
7
WHAT HAVE WE ACHIEVED?
On-Time Delivery of First Class Mail
Three-Day Commitment
90%
Percent On Time
85%
80%
75%
70%
92 93 94 95 96 97 98 99 00 01 02 03 04
Fiscal Year
EVA PFP
8
WHAT HAVE WE ACHIEVED?
Safety Indictors
10.0%
9.0%
OSHA I&I
8.0%
7.0%
6.0%
Rate
5.0%
4.0%
Lost Workday Injuries
3.0%
2.0%
1.0%
0.0%
92 93 94 95 96 97 98 99 00 01 02 03 04
Fiscal Year
EVA PFP
9
WHAT HAVE WE ACHIEVED?
Voice of Employee Survey
63%
62%
Positive Response
61%
60%
59%
58%
57%
56%
55%
54%
'99 '00 '01 '02 '03 '04
EVA PFP 10
WHAT HAVE WE ACHIEVED?
Total Factor Productivity (Cumulative)
18
Cumulative % Change
16
14
12
10
8
6
4
2
0
'90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04
EVA PFP
11
WHAT HAVE WE ACHIEVED?
USPS Break-Even Model
NET INCOME = NET LOSS
$600 Year 1 Rate
Increase
Year 4 Rate
Increase
Year 7 Rate
Increase
$400
$200
Net Income
in millions
$0
-$200
-$400
-$600
1 2 3 4 5 6 7 8 9
12
Fiscal Year
WHAT HAVE WE ACHIEVED?
Net Income (Loss) (in millions)
$4,000
$3,000
$2,000
$1,000
$0
-$1,000
-$2,000
'71 '75 '79 '83 '87 '91 '95 '99 '03
EVA 13
PFP
USPS
Business
Model
14
USPS BUSINESS MODEL
Business Mission
1970 Postal Reorganization Act
(Title 39)
Universal service
Uniform pricing
Break-even over time
15
USPS BUSINESS MODEL
Mandated Compensation Levels
Pay comparability to the private sector
Salary cap to cabinet level
Federal retirement, unemployment, and
injury compensation systems
Fund pension obligation for military
service
16
USPS BUSINESS MODEL
Mandated Compensation Process
Collective bargaining
–Moderation in growth of pay
–Mixed success in pay-for-performance
Pay consultations
–White collar pay-for-performance since 1995
–Merit and variable pay programs
17
Design
Foundation
18
DESIGN FOUNDATION
History of Pay Policy Changes
Step Variable Pay
Increases Program Pay-For-
(very large Performance
lump sums) Program
COLA (salary
Increases Merit Pay increases &
Program large lump
(salary sums)
General increase &
Increases very modest
lump sums)
1980s - 1994 1995 - 2001 2003 - 2005 19
DESIGN FOUNDATION
Landmarks in Transformation
Postal Reorganization Act of 1970
Sea of red ink in through early 1990s
Early 1990s - operational metrics
1992 PMG Runyon – change & focus
1995 market study / pay talks
3 PMGs since 1995 maintained
commitment to pay-for-performance
2001 Transformation Plan 20
DESIGN FOUNDATION
Basic PFP Assumptions
Starting point is extensive balanced
scorecard of metrics
Metrics must be objective, measurable
& independently verifiable
Program must drive continuous
improvement year-to-year
Success is linked from corporate to
unit to individual objectives
21
DESIGN FOUNDATION
Goal Alignment & Line-of-Sight
100%
Corporate/District 50%
Corporate
75%
80%
100% Indicators
Unit /
50% Individual
25%
0% 20%
COO Area Dist Area Non-
Mgr Exec Executive
22
DESIGN FOUNDATION
Old Thinking on Design
Target only motivates
those close to the
target.
One Target and
Performance
Pay
PAY
Those far below Those far above
target, have target, have
motivation to lower motivation to lower
the bar for the future. the bar for the future.
FINISH LINE
23
DESIGN FOUNDATION
New Thinking on Design
Multi-level Targets
BREAKTHROUGH
and Performance Pay.
STRETCH
PAY
PLAN
.
NON HIGH EXCEPTIONAL
CONTRIBUTOR 24
CONTR CONTR CONTRIBUTOR
DESIGN FOUNDATION
Overall Performance Ratings
Adjective Rating Number Rating
Exceptional
13, 14, 15
Contributor (EC)
High Contributor
10, 11, 12
(HC)
Contributor
4 to 9
(C)
Non Contributor
1, 2, 3
(NC) 25
PERFORMANCE EVALUATION
15-Point Evaluation System
NC C HC EC
3 6 9 12 15
2 5 8 11 14
1 4 7 10 13
26
Performance
Evaluation
27
CORPORATE INDICATORS
Measured at National/District Level
Improve Enhance Generate
Service Performance- Revenue;
Based Culture Manage Costs
Priority Surface OSHA Illness & National Total
w/in 2 Days Injury Rate Revenue
Priority Air w/in VOE Survey Total Factor
2 Days Score Productivity
Express Mail
First Class
Overnight
First Class 2 Day
First Class 3 Day
28
UNIT INDICATORS
Measured at Unit Level
Improve Enhance Generate
Service Performance- Revenue;
Based Culture Manage Costs
Customer Craft Training Total Operating
Service MVA Rates Expense
Measure Safety Programs Retail Revenue
Delivery Scan Grievance Rates
Rates Injury Comp
Rates
29
INDIVIDUAL INDICATORS
Samples By Function
Customer Services Mail Processing Finance Maintenance
• Cost Per Delivery • Workhours • Total Operating • Preventative
(CPD) • Thru-Put Expense Maintenance
• Rural Hours • Delivery Performance to and Bypass
Percent to Confirmation Plan Rate
Standard Scanning • Local payments • Equipment
• PO Boxes Not Up • SAMS Scans percentage Availability
On Time • Cancellations by • TACS Payroll • Inventory
• Function 2 1800 (or 2000) Adjustments Accuracy
Workhours % Plan • Segmented • Jams per 10K
• Function 4 Inventory • (Labor) Cost
Workhours % Plan Accountability per 1,000
(SIA) pieces
• Statistical
Programs
30
CORPORATE INDICATORS
How Targets Set? Look at Past Performance
C LU ST ER F R EQU EN C Y A P0 9 F Y 0 3 Y T D
15
10
5
0
53.0 54.0 55.0 56.0 57.0 58.0 59.0 60.0 61.0 62.0 63.0 64.0 65.0 66.0 67.0 68.0 69.0 70.0 71.0
INDEX PERFORMANCE
Indicator: “Voice of the Employee” Survey
Exceptional
Non-Contributor Contributor High Contributor
Contributor
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
52.1 53.5 54.9 57.1 59.3 61.2 62.3 63.7 65.2 66.6 68.0 69.5 70.9 72.3 73.7
31
Page 1/1
CORPORATE INDICATORS
How Targets Set? Set 15 Targets
32
PERFORMANCE EVALUATION
Weights Applied to Each Indicator
Non-C Contributor High C Excep C
Indi-
Wgt
cators
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
#1 10% 91.5 92.0 92.5 93.0 93.5 94.0 94.4 94.9 95.3 95.7 96.1 96.6 97.0 97.4 97.9
#2 5% 84.3 85.0 85.8 86.5 87.3 88.0 88.6 89.2 89.8 90.4 91.1 91.7 92.3 92.9 93.5
#3 5% 91.7 92.3 93.0 93.7 94.3 95.0 95.3 95.6 95.8 96.1 96.4 96.7 96.9 97.2 97.5
#4 10% 92.0 92.4 92.8 93.2 93.6 94.0 94.3 94.5 94.8 95.0 95.4 95.8 96.2 96.6 97.0
Etc. Etc.
33
PERFORMANCE EVALUATION
Final Rating Calculation
Non-C Contributor High C Excep C
Factors Wgt
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
Corp/Dist 40% X
Unit 40% X
Indiv 20% X
Final
100% X
Rating
34
Headquarters Employees
Target Functional Averages
8 Target HQ Average
6 8 10 Target HQ Vice President
Averages
6 8 10 Executive Ratings / Target
Non-Executive Averages
4 6 8 Non-Executive Ratings
35
Pay Actions
36
PAY ACTIONS
15-Point Evaluation System
NC C HC EC
3 6 9 12 15
2 5 8 11 14
1 4 7 10 13
37
PAY ACTIONS
Non-Executive Pay Actions
NC C HC EC
3 6 9 12 15
0% 3.5% 6.5% 9.5% 12.0%
2 5 8 11 14
0% 3.0% 5.75% 8.75% 11.0%
1 4 7 10 13
0% 2.5% 5.0% 8.0% 10.25%
Paid as salary increase up to grade maximum;
38
balance as lump sum.
PAY ACTIONS
PFP Administrative Rules
1. Award calculated on EOFY salary applied
against new salary ranges effective Pay
Period 1.
2. Paid as salary increase; lump sum if over
grade maximum.
3. Part-timers have lumps calculated against
their reduced schedule of annual hours.
4. If changed grades in window period,
calculation remains the same unless
impacted by maximum. Then balance
converted to lump sum. 39
PAY ACTIONS
PFP Administrative Rules
5. If converted between FT and PT status in
window period, calculation made on status as
of EOFY.
6. If reassigned to a non-eligible position in
window period, all paid as lump sum.
7. If promoted to executive status in window
period, all paid as lump sum.
8. Pro-rated calculations for newly eligible, new
hires, and non-military LWOP.
40
Salary
Structures
41
Salary Structure
Non-Executive (EAS)
26 grades with minimums & maximums
Length of range is about 50%
No steps
No locality pay premiums
One annual salary increase based on
performance (Pay-For-Performance
Program)
42
MARKET-BASED PAY
Private Sector Trend & Postal Strategy
Employment Cost Index (ECI)
5.0
If Under
4.5 Market
4.0
3.5
% INCREASE
3.0 If At Market Below
2.5
3%
2.0
1.5
1.0 If Over
Market
0.5
0.0
1990.4
1991.4
1992.4
1993.4
1994.4
1995.4
1996.4
1997.4
1998.4
1999.4
2000.4
2001.4
2002.4
2003.4
2004.4
Private Industry, All Workers, Wage & Salary 43
DESIGN FOUNDATION
EAS Grade Maximum Changes
FY 2001 FY 2002 FY 2003 FY 2004 FY 2005 FY 2006
EAS Merit Merit Merit PFP PFP PFP
Grds
12/29/01 12/28/02 12/27/03 1/8/05 1/7/06 1/6/07
22-26 3.75% 3.75% 4.0% 3.5% 3.75% ???
16-21 3.3% 3.3% 3.5% 3.25% 3.5% ???
11-15 2.55% 2.55% 3.0% 3.0% 3.0% ???
1-10 0.0% 0.0% 0.0% 1.5% 1.5% ???
A-E $.50 $.50 $.50 $.25 $.50 ???
44
FY 2004
Results &
Ratings
45
Matrix Matrix
Corporate Indicators Wgt
Plan Result
Priority Surface 10% 6 8
Priority Air 5% 6 10
Express Mail 5% 6 11
First Class Overnight 10% 6 10
First Class 2-Day 5% 6 9
First Class 3-Day 5% 6 10
OSHA Ill. & Inj. Rate/Imp 10% 6 10
VOE Survey Rate/Imp 10% 6 7
Total National Revenue 20% 4 4
Total Factor Productivity 20% 6 15
Overall Result 100% 9.30
46
FY 2004 RATINGS
Nation-Wide Non-Executive Ratings
25%
20%
Distribution
15%
10%
5%
0%
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15
PFP Rating
47
Average Rating 8.8
FY 2004 RATINGS
Field Non-Executive Ratings
25%
20%
Distribution
15%
10%
5%
0%
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15
PFP Rating
48
Average Rating 8.8
FY 2004 RATINGS
HQ & Area Office Non-Executive Ratings
25%
20%
Distribution
15%
10%
5%
0%
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15
PFP Rating 49
Average Rating 8.9
FY 2004 RATINGS
Average Non-Executive Ratings By Grade
15
14 Average Rating 8.8
13
12
11
10
PFP Rating
9
8
7
6
5
4
3
2
1
0
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
50
EAS Grade
FY 2004 RESULTS
Engineering Department
280 engineers and executives
Part of HQ process for performance
evaluations
FY 2004 Engineering ratings average
higher than national average
– Important role of function in productivity of
USPS (automation)
– Important role of function in safety and
health of USPS customers and employees
(anthrax)
51
FY 2004 RESULTS
Engineering Department (continued)
Engineering response to PFP positive:
– Greater focus on productivity
– Encouraged cooperation between functions
– Higher number of higher ratings & pay
Engineering concerns:
– Goal setting process needs to be earlier
– Comparison of ratings not always healthy
– Need for greater objectivity in goals
– Focus on short-term results over long-term52
