Compensation and Benefits

The contracts with the four largest labor unions representing our employees include COLA-based compensation adjustment provisions. There were no COLA increases in 2010 or 2009, but there was a large COLA in 2008, which contributed to a significant increase in the 2009 compensation of bargaining employees.

Non-bargaining employees receive pay increases through a pay-for-performance program that makes meaningful distinctions in performance. These employees do not receive automatic salary increases, nor do they receive COLAs or locality pay.

Compensation and benefits of $49,035 million declined $1,896 million, or 3.7%, in 2010, primarily due to a reduction of 75 million work hours. This achievement is discussed in further detail in the “Work Hours” discussion below. Offsetting a portion of the impact of work hour savings was $112 million accrued in Quarter I for incentives being paid to approximately 7,400 APWU and NPMHU employees who elected in Quarter I to retire or resign from the Postal Service.

Compensation costs in 2010 decreased by $1,537 million, or 3.9%, from $39,208 million in 2009 to $37,671 million, due to the above-mentioned decline of 75 million work hours. Partially offsetting the savings generated by the decrease in work hours was a slight increase in the average hourly cost of 2.1% plus the previously mentioned retirement/resignation incentive. The first incentive installment was paid in Quarter I, 2010 and the final installment will be paid in Quarter I, 2011.

Retirement expenses for current employees, which consist primarily of employer contributions to the Federal Employees Retirement System (FERS) and Social Security, decreased by $108 million, or 1.8% and current employees’ health benefits expense decreased $153 million, or 2.9%, from the prior year. These decreases were due primarily to the reduction of approximately 39,000 career employees. Other compensation and benefit expenses decreased $98 million, or 19.1%, primarily as the result of lower unemployment costs.

In 2009, total compensation and benefits costs declined $1,427 million, or 2.7%, from 2008’s compensation and benefit costs of $52,358 million. The 2009 decrease was primarily due to a 115 million hour reduction in work hours.

In 2009, compensation expense was $39,208 million compared to $40,633 million in 2008, a $1,425 million, or a 3.5% decrease. The 2009 decrease in compensation expense was driven by the 115 million work hour reduction. These savings were offset by the carryover impact of 2008 COLA increases which added approximately $1.1 billion to 2009 expense and the accrual of $197 million for 13,400 employees who voluntarily elected in 2009 to retire or resign from the Postal Service.

2010 Breakdown of Operating Expenses