Table of Contents

• Introduction
• Background
• The Postal Service Pays More than 76% of its Revenues to Employees
• Improve, Rather than Overhaul, Tools Available to Manage Workforce
• Toward More Constructive Collective Bargaining
• A New, Time-Sensitive Approach to Arbitration
• Making the Collective Bargaining Process Work Better
• Comparability Must Cover Total Compensation
• Compensation Premium Debate Requires Independent Resolution
• Comparability Analysis Should Bind Labor Negotiations
• Addressing Significant Retiree Benefit Obligations
• Postal Service Owes the Public Complete Transparency
• Taxpayers, Not Ratepayers, Should Finance Military Pensions
• Building an Incentive-Based Culture of Excellence
• Reducing Grievances
• Pay-for-Performance Incentives
• Executive Compensation
• Rein in Workers’ Compensation Liabilities
• Management Ranks Need to be Thinned, Too
• Conclusion
• Chapter 6 Recommendations*

• Dissenting Statement of Report by Commissioner Norman Seabrook

Introduction

No matter how well-laid the plans for modernizing the nation’s postal network, for these efforts to succeed in elevating postal operations to a new standard of excellence, they must more effectively utilize the Postal Service’s most valuable assets—its employees. The ambitious plans laid out in this report provide the basis for sweeping changes in the way that the Postal Service meets its mission and pursues additional "breakthrough" improvements in productivity.

These changes will have a profound impact on the Postal Service as an institution. The level of success achieved by the Postal Service will hinge on its ability to successfully deploy and motivate a talented, capable, nimble workforce of a size appropriate to the future postal needs of the nation and to give its employees a personal stake in the success of the institution’s ambitious goals.

The new Board of Directors and Postal Service management must assume responsibility for building and maintaining a world-class workforce in terms of service standards and efficiencies. Essential to this process is the ability of management and labor to work constructively together to determine the right size of the postal workforce and to ensure appropriate flexibilities in its deployment. This is the critical issue when it comes to controlling the future costs and capabilities of the workforce. Far more than individual benefits, the size of the workforce determines the costs of the workforce.

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The last major overhaul of the Postal Service in 1970 was caused, in part, by the demands of postal workers for adequate pay and the needs of management to have the cooperation of employees as the Postal Service embarked on a significant modernization to meet the country’s changing postal needs. Today, the Postal Service again must significantly overhaul its operations to reflect changes in technology as well as shifts in how the nation uses the mail. Once more, successful adaptation hinges on the cooperation and support of the workforce that makes the regular, reliable and universal delivery of the nation’s mail possible.

Thirty years later, the overall result has been positive for the workforce. Postal clerks and city letter carriers, for example, have an average annual wage of more than $42,500. Postal workers also enjoy the job security and ample benefits packages that make Federal employment attractive. According to the Postal Service, average annual total compensation, including both wages and benefits, for postal clerks and for city letter carriers is nearly $60,000.

Given this "best of both worlds" package, it is entirely understandable why so many would be attracted to Postal Service employment. As of July 2001, the Postal Service had a backlog of some 400,000 job applicants and virtually no turnover.2 In 2002, less than 1.5% of bargaining unit employees resigned before they retired, a "quit rate" that is lower than the rate for most private firms in America. return to Table of contents

The Postal Service employs approximately 843,000 people in both career and noncareer positions (Exhibit 6-1), making its workforce more than twice the size of the United Parcel Service and more than four times the size of FedEx. All tallied, the Postal Service’s workforce as of 2002 was second in size only to Wal-Mart in the United States and was the fourth largest civilian workforce in the world (Exhibit 6-2).

Approximately, one out of every three civilian employees of the U.S. government works for the Postal Service.3 Given these facts, it comes as little surprise that more than $3 out of every $4 earned by the institution in Fiscal Year 2002—some $51.5 billion of $66.5 billion—went to pay the wages and benefits of its employees.4 Unlike their private-sector counterparts, however, total compensation costs are largely outside management’s control. Benefits are effectively set by statute. Costs for retiree health care and pension plans are skyrocketing for all employers, and the Postal Service has unfunded obligations for retiree health benefits of approximately $48 billion.5 Yet retiree health care and pension benefits are effectively "off the table" of collective bargaining.

In addition, rigid work rules make it difficult to redeploy employees to new functions aligned with a changing network. To meet the needs of an optimized and efficient new postal network, substantial realignments of the workforce are necessary. Some employee crafts, such as last-mile mail carriers, should continue to grow with the nation. Other positions, most notably in processing and in middle management, are likely to decline as the Postal Service pursues new partnerships with the private sector and achieves greater productivity gains.

Most parties generally acknowledge the imperative to rightsize the Postal Service around the forward-looking needs and design of the nation’s postal network. Fortunately, there is a potentially significant attrition opportunity on the horizon, with some 47% of current career employees eligible for regular retirement by 2010 (Exhibit 6-3). Already, the Postal Service has begun capitalizing on this opportunity to reduce its size. This trend could accelerate now that the Office of Personnel Management has granted the Postal Service permission to offer voluntary early retirement to large numbers of its bargaining-unit employees. The Postal Service must take full advantage of this attrition opportunity and exercise maximum discipline in its hiring practices in order to realign its workforce with minimal displacement of current workers. return to Table of contents

The Commission firmly believes that postal workers should continue to have access to collective bargaining and total compensation comparable to, but not exceeding, the private sector. Both are consistent with an enterprise that operates in a businesslike fashion and is charged with being self-financing. However, the Commission proposes several reforms aimed at achieving the following goals: delivering much needed clarity to the definition of "comparability;" adjusting the collective bargaining model to encourage more timely resolution and greater fiscal restraint; reforming a broken system for dealing with employee-management disputes; and granting the Postal Service latitude to deal with the mounting costs of its workforce in innovative ways that neither add to the burden on ratepayers nor sacrifice the Postal Service’s commitment to compensating its employees at a level comparable to that of the private sector.

First and foremost, Postal Service management must repair its strained relationship with its employees, most prominently evidenced by the unusually high number of workforce grievances filed and appealed and the relatively frequent occurrence of contract negotiations being settled through protracted arbitration.

Second, management and employee unions must have a constructive mechanism to work together to bring expenses and revenues of the Postal Service into alignment.

This includes allowing management greater flexibility in the deployment of the workforce as the nation’s postal network is realigned and redesigned over time. It also entails establishing an impartial mechanism for resolving deeply divisive debates about the possible existence of a total compensation premium for postal workers.

Third, the Commission believes that successful management of the workforce requires far more than fixing problems and controlling costs. Building an incentive based culture up and down the ranks is key to elevating the Postal Service to a new standard of performance. To align personal and institutional goals, the Commission recommends the development of an objective, understandable pay-for-performance program that grants all employees, not just management, a meaningful stake in the success of the Postal Service.

Simply put, the Postal Service cannot deliver the service the nation needs and deserves if its managers and employees are not working together effectively. As such, the Postal Service must be given an array of tools to manage its workforce constructively in a period of fundamental change. return to Table of contents

As mentioned previously, postal workers enjoy a special status within the Federal government in light of their right to negotiate compensation and other basic working rights and conditions through collective bargaining. The Commission favors retaining this important tradition, but recommends several constructive reforms aimed at strengthening this vital process to improve the often adversarial relationship between management and employees.

In making its recommendations, however, the Commission wishes to clearly note that its collective bargaining proposals are prospective. They would not affect existing negotiated agreements. Nor would they impact the status of current Postal Service retirees. The Commission endorses the collective bargaining process. Its recommendations simply aim to make possible in the future a more effective and constructive engagement between Postal Service management and the men and women who handle, process, and deliver the nation’s mail.

The unique status of the Postal Service—a government entity required to act in a businesslike manner—is readily apparent in the design of its collective bargaining process. On the one hand, if the Postal Service were a standard Federal agency, its wages and benefits would not be subject to negotiation. On the other hand, if it were a private corporation, it would operate under a collective bargaining model that would arm each side with the ultimate "big stick"—for employees, the right to strike; for the Postal Service, the right to lockout workers without a contract.

Given the essential nature of the service provided by postal workers, Congress expressly forbade these traditional bargaining weapons in the 1970 Act. Instead, the existing collective bargaining provisions provide two avenues for the parties to use in reaching an agreement—they can jointly agree on alternative negotiation procedures before an existing agreement expires, or follow the procedures outlined in statute.

The statutory process allows a minimum of 225 days of negotiation, fact finding and arbitration. In recent years, the parties have consistently agreed to forego that process in favor of alternative procedures. The alternative process used by the parties typically involves a three-person arbitration board consisting of one arbitrator selected by management, one selected by the union, and a third "neutral" arbitrator selected by the other two. Because the parties often agree to go directly to arbitration, the factfinding process is rarely used. One seasoned participant aptly likened this segment of the process to a "dead letter."6

Under the alternative process generally used by the parties, the arbitration board is not limited to selecting a proposal submitted by one of the parties. Instead, the board has the freedom to fashion a compromise or to come up with a wholly new, binding approach. Further, because the alternative procedures generally do not include strict time requirements, the length of the proceedings are often extended far beyond the timeframes contemplated in the 1970 Act’s collective bargaining provisions.

In fact, the last three proceedings took between 13 months and 17 months to conclude.

Not only has the current process resulted in lengthy proceedings, the Postal Service also lags behind the private sector in its ability to negotiate contract settlements without resorting to arbitration. With respect to the Postal Service’s largest union, nearly 1 in 3 contract agreements have required arbitration.7 However, the testimonies of numerous collective bargaining experts persuasively make the case that the fault lies not with the parties, but with a process ill-suited to the unique context of the Postal Service.

At the heart of the problem is the inherently circular nature of the current collective bargaining model. Parties enter into negotiations, identify issues that can be agreed upon, and then work toward each other on the issues that divide them. At a certain point, absent the "big sticks," parties sometimes conclude they have nothing to lose by going to arbitration. At that point, both sides revert to their original position and prepare to begin their arguments all over again for the arbitrators. In short, the current system provides few incentives for the parties to reach a negotiated settlement.

Instead, it appears to leave difficult decisions to arbitrators, rather than the parties who have to live with the arbitrators’ decisions.

At a time when the Postal Service needs to significantly control costs and realign its workforce, a process that fosters management-employee discord and deters timely and reasonable compromises is especially counterproductive. It produces a "chilling effect" not only on the collective bargaining process, but also on the relationship between management and employees, and ultimately the service both are capable of delivering to customers.

Under a med-arb approach, the rarely used "fact-finding" phase would be replaced with an intensive and mandatory mediation stage that the Commission proposes to begin immediately after a contract expires without a new agreement in place. In this phase, a respected and experienced mediator—jointly selected by the parties from a list provided by the Director of the Federal Mediation and Conciliation Service ("FMCS")—works with the parties to navigate any stalemates and forge an agreement, if possible. If not, the list of outstanding issues is narrowed, so the arbitration can focus on the key differences rather than reopen every debate. Also to keep the process advancing toward resolution, the Commission proposes that this mandatory mediation phase last no more than 30 days. return to Table of contents

If the process moves to arbitration, once again the progress to date is maintained. This is due to a core med-arb requirement—that the mediator serve on the arbitration panel, along with two other neutral arbitrators (each of whom would be selected by one of the parties from a list provided by the Director of FMCS). By carrying over the mediator, the progress gained in the negotiation and mediation phases is not lost, as it often is under the current model. All parties are focused solely on the outstanding issues identified in the mediation phase. The arbitrators also are aware of what tentative concessions both sides have offered in seeking to reach agreement. Therefore, there is little opportunity for either side to revert to original bargaining positions, open up old debates and force the entire process to start from scratch.

To further strengthen the momentum toward resolution, the Commission proposes that the arbitration stage last no more than 60 days and be broken up into several distinct phases. For the first 40 days, both sides should present their arguments to the arbitration panel and continue negotiating with each other. At the end of that period, each side should be required to produce two good-faith offers, share them with the other side, and try once more to negotiate a resolution.

The Commission proposes that the arbitration panel have only three days to settle on a tentative award. At that time, the Commission proposes a 10-day period, which offers the two parties one last chance to fashion their own final agreement. This reflects a central theme of the new model crafted by this Commission: At every stage, parties have the opportunity to forge their own agreement and preempt the arbitrators’ award. The resulting cycle—repeatedly going back to the negotiating table with a more refined set of choices and pressed on by a strict timeline and the prospect of an LBFO award—keeps the pressure on the parties that have to live with the final outcome of the process to take care of business themselves and do so in a timely and mutually agreeable manner, rather than a lengthy and confrontational one. return to Table of contents