Re-li-able  adj [from Latin religare to tie back] 1:  dependable based on previous experience 2:  right to your mailbox, day in and day out — rain or shine, and only from the United States Postal Service.

Our personnel compensation and benefits make up more than 79% of our operating costs. These costs, including interest on deferred retirement, grew only $204 million or 0.4% in 2002. This compares to growth of 3.6% in 2001 and 4.4% in 2000. This year’s growth was primarily due to contractual labor payments, health benefits payments for current and retired employees and workers’ compensation costs. The growth was mitigated by labor reductions of over 78 million work hours, or approximately 38,000 work years.

Although average hourly labor rates increased by about 2.8%, compensation cost declined 2.8% or $1,047 million due to our reduction in work hours. Our health benefits expense for current employees was $342 million greater than last year, driven mainly by premium increases. As health care costs continue to rise, our health benefits expense for current employees continue to grow.

Almost 90% of our career workforce is covered by collective bargaining agreements. We reached agreements through arbitrated settlements with all of our major unions in 2002. These agreements, which have expiration dates ranging from November 20, 2003 to November 20, 2006, call for basic pay increases and cost of living adjustments (COLAs).

Our non-bargaining employees receive pay increases only through annual merit reviews. Unlike the rest of the federal government, these employees do not receive automatic salary increases, nor do they receive COLAs or locality pay.

In 1995, the Board of Governors approved a group incentive program that covered over 80,000 supervisors, managers, postmasters, executives and staff throughout the Postal Service. To spur greater levels of performance in core areas, this incentive program set measurable performance goals for the entire organization and for each organizational unit at the beginning of each year.

Participants in the program earned incentive credits through performance to the goals and financial performance measures, which indicated that economic value had been added to the organization. From 1996 to 2001, employees earned incentive credits that were placed in a reserve account. Each year, approximately one-third of the total reserve amount was paid, and the remainder was held in the reserve and placed “at risk,” pending future performance. This approach was designed to promote continuous improvement and create long-term value. While considerable service improvements and productivity gains resulted from this pay-for-performance system, there is still room for improvement. In 2002 management, with the Board of Governor’s approval, decided to end the established pay-for-performance system. The majority of the remaining reserve will be paid out in October 2002. The reserve was recognized as expense in the years earned.

Management is meeting with representatives from employee groups to redesign the performance-based pay systems to enhance accountability for individual contributions to organizational success. The new system will provide clear expectations and feedback on progress toward established goals. It will also be designed to reward and recognize exceptional individual performance for achieving challenging objectives.