1.                  Developing an Appropriately-Sized Workforce.  As the Postal Service works to meet the challenges of the 21^st century, it must develop a world-class workforce appropriate to fulfilling its universal service obligation.  Fortunately, the Postal Service will soon be presented with a unique attrition opportunity with some 47% of current career employees eligible for retirement by 2010.  The Subcommittee urges the Postal Service to take full advantage of this attrition opportunity and to exercise maximum discipline in its hiring practices in order to right-size and realign its workforce with minimal displacement. (postalreporter: see Labor Force Schedule Optimizer System [SOS])

2.         Collective Bargaining: Process Improvements.  The Subcommittee affirms the collective bargaining process and recommends that it be retained.  However, the Subcommittee believes that the collective bargaining process can be improved to create additional incentives for the parties to reach negotiated settlements, and, when the parties fail to reach a negotiated settlement, to ensure that arbitration awards are made within a reasonable period of time.  In particular, the Subcommittee recommends the following:   

·                   Basic process.  A negotiation process, beginning 90 days prior to the expiration of an existing agreement, followed by a 30-day mandatory mediation process and, if mediation fails, an immediate 60-day interest arbitration process.

 ·                  Mandatory mediation and “Med-Arb.”  The 30-day mandatory mediation process would be conducted by a mediator who would become a member of the arbitration panel should mediation fail.  The purpose of the mediation process would be to either reach a negotiated settlement or to narrow the range of issues to be submitted to interest arbitration.  

 ·                  Interest arbitration.  The 60-day interest arbitration process would be conducted by a three-person arbitration panel comprised of three neutral arbitrators, one having served as the mediator.  The interest arbitration process would incorporate the Last Best Final Offer (“LBFO”) mechanism, and a 10-day period during which the parties would have a final opportunity to reach a negotiated settlement prior to the arbitration panel’s final award.

3.         Collective Bargaining: New Subjects.  The Subcommittee believes that the Postal Service’s pension and post-retirement health care plans should be subject to collective bargaining – meaning that the Postal Service and its unions should have the flexibility to develop new plans that are separate and apart from existing Federal pension and retiree health care plans.  However, the Subcommittee is also concerned about the uncertain impact such a change would have on the Federal system as a whole and on other Federal employees in particular.  As a consequence, the Subcommittee recommends that the Postal Service work with the Department of the Treasury, the Office of Personnel Management, and any other persons or entities deemed necessary to determine the impact separate Postal Service pension and retiree health care programs would have on the existing Federal systems.  As a first step, the Subcommittee recommends that:

 ·          The Postal Service be authorized to negotiate Federal Employee Retirement System (“FERS”) eligibility requirements and employee contributions;

  The Postal Service be authorized to negotiate the eligibility and retiree contribution requirements for the post-retirement health care component of the Federal Employee Health Benefit Program (“FEHBP”), specifically for future Postal Service retirees; and

·               The current statutory requirement that “[n]o variation, addition, or substitution with respect to fringe benefits shall result in a program of fringe benefits which on the whole is less favorable to the officers and employees than fringe benefits in effect on [July 1, 1971]” be repealed.

4.         Pay Comparability.  The Subcommittee recommends that the 1970 Act be amended to clarify the meaning of the term comparability, and that the new Postal Regulatory Board be authorized to determine comparable total compensation for all Postal Service employees.  In determining comparable total compensation, the Subcommittee recommends that the Postal Regulatory Board be authorized to determine the appropriate sector(s) of the private sector workforce to be used as the basis of comparison.  The comparability determination of the Postal Regulatory Board should be enforced as a cap on the total compensation of new employees.  In addition, if the Postal Regulatory Board determines that a total compensation premium exists for current employees, the Subcommittee recommends that it be authorized to determine the appropriate period of time during which the premium must be eliminated, and to review periodically its initial determination and the Postal Service’s progress in eliminating the premium. 

5.         Pay-for-Performance.  The Subcommittee believes strongly that performance-based compensation programs are effective tools that, when designed correctly, can be used to align the goals of management and labor and result in improved efficiency and service quality.  The Subcommittee, therefore, recommends that the Postal Service undertake a careful study of performance-based compensation programs for both management and represented employees, and that it work with the unions and management associations to design and implement a performance-based compensation program that is meaningful to Postal Service employees and assists the Postal Service in meeting its productivity and service quality goals.

6.         Grievances.   The Subcommittee believes that the current dispute resolution process must be revised if the Postal Service is to operate in accordance with the best practices of private sector companies with highly unionized workforces.  As a first step, the Subcommittee recommends that the Postal Service work diligently with its unions to implement best practice grievance procedures, including those recently implemented by the Postal Service and the National Association of Letter Carriers.

7.         Workers’ Compensation Claims.  The Subcommittee recommends that the Postal Service be provided relief from certain requirements of the Federal Employees’ Compensation Act (FECA).  Specifically, the Subcommittee recommends the following:

  The Postal Service should not be required to pay benefits until after the expiration of a three-day waiting period; 

 The Postal Service should be allowed to limit benefits to 2/3 of the maximum weekly rate; and

             The Postal Service should be allowed to transition individuals receiving workers’ compensation to the Postal Service’s retirement plan at such time as the employee would have become eligible for retirement notwithstanding the injury giving rise to the workers compensation benefits.

8.         Executive Compensation.  The Subcommittee recommends that the current statutory salary cap be repealed.  The Subcommittee further recommends that the Board of Directors be authorized to establish rates of pay for officers and employees at levels competitive with the private sector, and that performance be considered by the new Board of Directors as a key component of the pay for senior executives.

9.         Management Structure.  The Subcommittee recommends that the Postal Service restructure its management to eliminate redundant positions and geographical divisions and standardize and clarify job functions.  The Subcommittee also recommends that the new Board of Directors conduct a review of the entire management structure, size and cost to determine whether they are necessary and consistent with the best practices of the private sector and to require managers to justify their functions and the size of their staffs.

10.       Accounting for Retiree Health Care Obligations.  The Subcommittee recommends that the new Board of Directors review the current Postal Service policy relating to the accounting treatment of retiree health care benefits, and work with the Postal Service’s independent auditor to determine the most appropriate treatment of such costs in accordance with applicable accounting standards and in consideration of the Postal Service’s need for complete transparency in the reporting of future liabilities.  The Subcommittee also recommends that the Postal Service Board of Directors consider funding a reserve account for unfunded retiree health care obligations to the extent that the Postal Service’s financial condition allows.

11.       Funding Military Service.  The Subcommittee recommends that responsibility for funding CSRS pension benefits relating to the military service of Postal Service retirees be returned to the Department of the Treasury.

The Commission Co-Chairs submit the following recommendations to the Commission:

1. Governance. In order to establish a governance structure that exemplifies the best practices of similarly-sized private sector corporations, the Co-Chairs recommend that the current Postal Service Board of Governors be transformed into a corporate-style Board of Directors with broad authority to oversee Postal Service operations. Further, the Co-Chairs recommend that the Board of Directors consist of three Directors appointed by the President, the Postmaster General, and eight independent Directors initially selected by the three Presidentially-appointed Directors with the concurrence of the Secretary of the Treasury. Thereafter, the eight independent Directors would be selected by the full Board of Directors with the concurrence of the Secretary of the Treasury. All Directors should be selected based on business acumen and other experience necessary to manage an enterprise of the Postal Service’s size and significance. Terms for all Directors should be three years with a mandatory retirement age of 70.

2. Management flexibility. The Co-Chairs recommend that the Board of Directors and senior Postal Service management be given greater flexibility to manage without the limitations imposed by statutory constraints. Specifically, the Subcommittee recommends: 1) allowing Postal Service management the flexibility to take advantage of corporate best practices as discussed in subcommittee recommendations; 2) allowing the Postal Service to set rates within limits established by a new Postal Regulatory Board without obtaining prior approval; 3) repealing the sub-limits placed on annual borrowing for capital and operating needs within the existing $3 billion annual limit on borrowing; and 4) allowing the Postal Service to retain earnings subject to limits established by the Postal Regulatory Board.

3. Accountability and Public Policy Oversight. In order to ensure that a Postal Service management with greater latitude has appropriate oversight, the Co-Chairs recommend that the Postal Rate Commission be transformed into a new Postal Regulatory Board with the responsibility to protect the public interest and promote public confidence in the fairness and transparency of postal operations. The new Postal Regulatory Board should have authority to: review and refine the scope of the Postal Service’s universal service obligation; clarify and refine the scope of the postal monopoly; regulate rates for non-competitive products and services; establish limits on the accumulation of retained earnings by the Postal Service; ensure financial transparency; obtain information from the Postal Service, if need be, through the use of new subpoena power; and review and act on complaints filed by those who believe the Postal Service has exceeded its authority. The Co-Chairs recommend that the new Postal Regulatory Board be comprised of three members who are appointed by the President and confirmed by the Senate, and that no more than two should be members of the same political party. Members of the Postal Regulatory Board should be selected solely on the basis of their demonstrated experience and professional standing.

4. Rate-setting Procedures. The Co-Chairs recommend that the existing rate-setting process be replaced with an incentive-based rate-setting methodology in which the Postal Regulatory Board: 1) establishes base-line rates and rate ceilings for non-competitive products and services; 2) reviews, in advance, rate requests for non-competitive products and services that exceed established rate ceilings; and 3) ensures that rates for competitive products and services are not cross-subsidized by revenues generated by non-competitive products and services. The Co-Chairs also recommend that the Postal Regulatory Board, upon written complaint, be authorized to conduct after-the-fact reviews of rate increases for non-competitive products and services, and, if necessary, to require adjustments to these rates when they are inconsistent with established rate ceilings. The Postal Regulatory Board should also be authorized to review, upon written complaint, whether a rate for a competitive product or service is being cross-subsidized by revenue generated by non-competitive products or services and to take appropriate remedial action. In conducting after-the-fact reviews, the Postal Regulatory Board should ensure that affected parties have an opportunity to participate, but should also ensure that the time-frame for the review is dramatically reduced from those permitted under the existing rate-setting process. The Co-Chairs suggest that participation by interested parties be limited to written submissions, and that all procedures require a final determination within 60 days.