The Postal Service should expect a grilling from members of both parties in Congress. Congress is the representative of the shareholder and the two largest creditors facing the prospect that their bills for over $5.5 billion will not be paid next fall and similar bills in future years may not be paid. If the Postal Service takes actions that do not reduce the non-payment risk of those payments due next fall and ones due in future years than Congress is within its right to raise questions as to whether the current Board of Governors needs to be replaced and could even put the new Postmaster General and his management team at risk of replacement.
The grilling that the Postal Service faces will likely ask one question repeatedly. Why was the Postal Service willing to sign any contract that did not freeze or reduce the compensation of current APWU members if APWU members enjoy a significant wage premium?
This will be the central question because testimony was presented by Michael Wachter in 2003 to the President's Commission that stated Postal Service employees enjoyed a 34.2% wage premium has been quoted by Representative Dennis Ross as the basis for his concern that the Postal Service was not tough enough in negotiating the APWU contract. Dissapointment with the agreement was also expressed by Congressman Darrel Issa who stated "The union contract renewals are the best chance to find new savings. Unfortunately, this looks like a missed opportunity. The Postal Service must show Congress and the American people that it can pay its own way, because the numbers do not seem to add up."
These comments reflect real concern because it is not clear if the Postal Service will have the money to pay the wage increases to current employees in 2012 through the end of the contract. However, it is not clear that going to arbitration would have produced a more favorable settlement for the Postal Service, even if it presented new testimony of Dr. Michael Wachter that continued to show a wage premium of a similar magnitude. Having looked at the challenges of unionized firms facing the need to reduce compensation expenses in order to remain competitive found few firms that were able to do this outside of bankruptcy regardless of whether negotiations were conducted under the Railway Labor Act or the National Labor Relations Act. Even firms without unions find it difficult to impose significant pay cuts on current employees, although it was not uncommon during the last recession for non-union firms to both increase the share of health care premiums paid by employees and eliminate the match to 401-K plans. Many of these companies have restored these benefits as the recession ended.
The House committee has two options in looking at the compensation question. The easy way is to bash Postal Service management and grab headlines by focusing only on the wage premium issue. A more constructive alternative would look at what would be required to bring compensation closer in line to market values. To do that they need to look at the following questions:
- Update the Wachter study and include analyses that look at alternative alternative approaches to this question.
- Update the Wachter study using the compensation of APWU members under various scenarios under which increasing proportions of APWU members are employed under the new compensation schedules, employee classifications and work rules.
- Examine the impact of the contract provisions that increase flexibility that allow the Postal Service to eliminate the cost of contracted services for work that an APWU member could do for 2 to 4 hours within a longer shift.
- Similarly, what is the difference in cost between using an APWU member and the non-union employee that the Postal Service is planning to displace?
- Examine the options the Postal Service has to convince existing APWU members to retire. A large share if not the majority of APWU members are at the highest pay step for the type of work that they do. Replacing these employees that are earning the highest availalble salary with those who are new would significantly cut costs.
In particular, the committee needs to ask two questions here. First, what proportion of APWU members, other postal unions, and management employees are eligible to retire now? Second, what is the increase in the retirement rate if a VERA is introduced and for retirement incentives ranging between 5,000 and a half year's salary? The answer to these questions would help illustrate the type of incentive necessary to increase the attrition rate to a level high enough to significantly cut compensation.
- Examine the arbitration process in order to determine the probability whether the Postal Service would have been generated a better result than what the Postal Service agreed to using either current law or changes suggested by Senator Susan Collins. This examination should also determine whether alternative approaches allowed by the National Labor Relations Act or Railway Act could have produced a result that would have had frozen or reduced the compensation of APWU employees without the threat of barnkrutcy or liquidataion.