The USPS press release on the secret survey: They still can’t get their story straight

March 24, 2012

Yesterday, the Postal Service issued a press release responding to revelations about a market research survey it commissioned last summer but chose not to tell anyone about.  The press release contains several misleading statements that only serve to compound the Postal Service’s bad faith in keeping the survey secret. 

One wonders why they even bothered issuing a press release, rather than ignoring the story and hoping it went away.  But the Postal Service was probably getting inquiries from the media, and someone decided it would be best to refer reporters to a press release. 

The press release will probably raise more questions than it answers, as you can already see in the way Government Executive handled it.  In an article entitled "Postal Service steers attention away from 'flawed' revenue study," GE rehashes the press release but then quotes a staffer for Congressman Gerald Connolly saying that the real reason they abandoned the study was that "they didn't like the results because they would be very inconvenient for them."  


The two phases of the market research

The market research was conducted by Opinion Research Corporation (ORC) to determine how mailers would respond to the change in service standards on which the Network Rationalization plan is premised.   The survey showed that slowing down First-Class and periodical mail would cause First-Class to drop by over 10%, periodical mail by nearly 20%, total mail volumes by nearly 8%, and revenues by over $5 billion a year.  

When the folks in postal headquarters saw those results, they decided the survey instrument was “seriously flawed” and ordered a second phase of research, this time making sure the questionnaire and concept statement (the prompt used to initiate the questioning) were constructed in a way to get better, more “reliable” results. 

The results for the phase-2 survey were much more palatable, and this is the research that became part of the Postal Service’s testimony to the Postal Regulatory Commission (PRC) in December as part of the Request for an Advisory Opinion.  Below are the results of the two phases of the market research.

Net contribution
Total Single Piece FCM
Total Presort FCM
Total First-Class Mail
Total Standard Mail
Total Periodicals
Total Single Piece FCM
Total Presort FCM
Total First-Class Mail
Total Standard Mail
Total Periodicals
Source: Phase-1, released by PRC 3/22/12; Phase-2, Whiteman’s testimony before the PRC, p. 22.

The Postal Service presented two witnesses to provide testimony about the market research — Rebecca Elmore-Yalch, a VP at ORC, and Gregory Whiteman, Manager of Market Research at the Postal Service.  Their initial testimony was extensive, but neither mentioned the existence of an earlier phase of research that had been abandoned.   During the “discovery” part of the PRC’s Advisory Opinion process, several interrogatories were posed that could have provided an opportunity to mention the phase-1 research, but no one did. 

Eventually, the questions became so direct, it was impossible to avoid acknowledging the existence of the phase-1 research, and the Postal Service turned over some data to the PRC, but classified it as “non-public.”  It took some pressure from members of Congress, the postal worker unions, and perhaps others, but finally, on Thursday, the results of the research were made public.  The rest of the materials submitted to the PRC remains “non-public,” and one wonders if the other shoe is yet to drop.


The Postal Service issues a press release

Needless to say, yesterday’s press release doesn’t provide any of this background.  Instead, the press release begins as follows: “The Postal Service conducted market survey research related to potential service standard changes.  A questionnaire used in the fall of 2011 asked business customer respondents about a scenario that would never be implemented at the same time.”

The survey was actually conducted in late summer, during August, but that’s a minor error.  It simply reveals that the person who wrote the press release had very little knowledge about what actually happened.

Contrary to what the press release says, the phase-1 survey does not describe “a scenario that would never be implemented at the same time.”  Instead, the concept statement used to initiate the interviews notes that the Postal Service is experiencing an “unsustainable” budget deficit, and it then simply enumerates the changes being considered to address the problem: seeking legislative reform to change government requirements to pre-pay health and pension benefits, eliminating Saturday delivery, and closing small post offices.  The statement then outlines the revisions in service standards being proposed.  (The phase-1 survey is here; the concept statement is on page 11.)

The phase-1 concept statement says nothing about implementing these changes all at once, as part of some overall “scenario.”  It simply says the Postal Service is “exploring several changes.” 

The press release then says, “Specifically, the survey asked whether business customer respondents would lessen their use of the mail if the Postal Service immediately imposed price increases, service standard changes, altered delivery frequency, realigned its network of mail processing facilities and other actions.  Any such contemplated actions, if implemented, would be done so over a phased, five-year time horizon, providing adequate time for planning.”

The truth of the matter is that the survey questionnaire never once mentions anything about a rate increase — not in the concept statement or in the questions themselves.  The words “price” and “rate” and “increase” do not appear anywhere in the survey.

The survey questionnaire also says nothing about doing everything — or anything — “immediately.”  There’s nothing alarming like that in the concept statement. 

Secret market survey reveals USPS plans would cost over $5 billion in lost revenue

March 21, 2012

While hearings before the Postal Regulatory Commission (PRC) are usually pretty mundane events, something totally unexpected happened today.  The Postal Service revealed something it’s been hiding for months — the projected revenue losses its consolidation plan could cause. The numbers are something to behold.

The PRC was holding hearings for its Advisory Opinion about the Network Rationalization plan to consolidate over 200 mail processing plants and to reduce service standards in the process.  Gregory Whiteman, Manager of Market Research at the Postal Service, was answering questions about market research commissioned last summer to determine how much revenue might be lost if the Postal Service reduced service standards and slowed down First-Class mail.  Up until this moment, the Postal Service had been reluctant to say much about this research.  Instead, it has stuck to the testimony it presented to the PRC in December, which was based on a second round of research conducted in October.

The results of this first round of research will officially be released tomorrow morning, but at the hearing, Mr. Whiteman revealed that the research showed that First-Class mail volumes would drop a whopping 10.3%, and total mail volumes would drop by 7.7%.  That translates into $5.2 billion in gross revenue losses, and $1.9 billion in net contribution losses (the contribution loss figures in lower costs for lower volumes).  The breadkown for the market research numbers can be seen here.  (They also show a volume drop for periodicals of nearly 20%.)

Losses like that would wipe out nearly all of the $2.6 billion in cost savings the Network Rationalization plan hopes to achieve.  Given that the AMP studies suggest cost savings might be far less than $2.6 billion, the consolidation plan could easily end up losing more money than it saves.

These volume and revenue losses are significantly greater than the numbers provided in initial testimony for the PRC’s Advisory Opinion.  That testimony was based on the second round of research conducted by Opinion Research Corporation (ORC).  That research, which is a central part of the Postal Service's case for consolidation, said the service standard changes would cause a volume loss of 1.7%, a revenue loss of $1.3 billion, and a contribution loss of $500 million.

These new numbers provide circumstantial evidence that when the Postal Service saw the results of what we now know as the Phase-1 research back in late September or early October, it realized the numbers were devastating to their case for the consolidation plan.  It ordered the market research firm to stop the research before finalizing the numbers, and it began work on a new research survey, apparently designed to elicit better, less damaging results. 

"Because we said so": The unassailable logic of postal managers and their salaries

March 19, 2012


Last week Kathy Hochul, Representative of New York’s 24th district, where Buffalo stands to lose a mail processing plant employing 700 workers, made a modest proposal — legislation to limit the salaries of the Postmaster General and his executive officers to the level of Cabinet Secretaries.  Her goal was to make a statement: “The Postal Service cannot make the argument that they need to cuts costs and let go hard-working postal workers when their own management team continues to rake in bonuses and make more than the President’s Cabinet.”

The proposal drew an interesting response from Thurgood Marshall, Jr., Chairman of the USPS Board of Governors.  Mr. Marshall argued that the Postal Service needs to pay salaries higher than elsewhere in government in order to attract and retain talented individuals to operate the Service.  It’s the same argument used to justify the astronomically high compensation paid to corporate executives in the private sector.

There are many arguments to be made for and against the huge salaries that have become prevalent in corporate America.  When those arguments are applied to the Postal Service, however, they raise two essential questions: Is the Postal Service more a corporate entity than a government entity?  And is the rationale expressed by Mr. Marshall valid?

The second question seems the easier to answer.  Thirty-eight senior executives of the Postal Service make salaries in excess of those paid to Cabinet Secretaries.  Now Chief Operating Officer Megan Brennan may have an important position, but is it more important than that of Secretary of Defense Leon Panetta, who makes $26,000 less than Ms. Brennan?  (And that doesn’t even take into account the additional $135,000 in bonuses she received in 2011.)

Mr. Marshall says that the Postal Service must pay these salaries to attract and retain competent people.  The problem with that argument is that nearly all of the senior postal executives are postal lifers, people who have spent virtually their entire careers in the Postal Service.

Former Postmaster General Jack Potter rose from carrier to the highest office in the organization.  Our current PMG rose from the position of clerk.  Now I’ll grant that it takes talent and perseverance to progress to the heights of an organization like the Postal Service, and many of these people worked hard to acquire advanced degrees along the way.  But the simple fact is that most of the executives in the Postal Service progressed up through the ranks — and that is the limit of their experience.

When you go down to the next level of the managerial pyramid — district managers, senior plant managers, and so on — the insular nature of management becomes even more apparent.  Those who earn more than $150,000 a year are almost exclusively employees who have risen through the ranks of the organization.  Their experience is almost entirely self-referential, and their professional universe is actually a pretty small place.  

When the Postal Service has sought to bring in outside “talent,” it has often been a disaster.  One only need mention the name Robert Bernstock.  He’s the fellow they brought in from Campbell Soup in 2008 with the hope that he would use his private-sector experience to re-invigorate slumping mail volumes.   During his two years as the President of USPS Mailing and Shipping Services, volumes continued to slump, and Bernstock resigned — under investigation for awarding nearly $5.9 million in controversial no-bid contracts to his former business associates.  When Bernstock left the Postal Service to return to the private sector, Postmaster General Potter commented, “Bob's work will have long-lasting, positive impact on the Postal Service and its customers."

One of the reasons General Motors got into such financial trouble is that senior managers became too insular and incestuous, too thoroughly committed to the GM corporate vision.  They lost the capacity to understand the world around them, thus dooming the organization to failure.

It was a very good year: The salaries of USPS executives

March 17, 2012

The Gannett 2012 salary finder for USPS employees came out this week, and it contains a wealth of information.  You can find the salary, job title, workplace, and year of hire for any postal employee.   That includes all the executives in L’Enfant Plaza. 

Unfortunately, the salary finder doesn’t contain information about bonuses and compensation packages, which for upper echelon executives can add up to almost as much as the base salary.  For example, according to the USPS Form 10-K for 2011 (p. 54), Chief Operating Officer Megan Brennan earned $225,308 in 2011, but brought in a total of 358,996, and Chief Information Officer Ellis Burgoyne earned $220,846 but brought in $508,688.

Even though the salary finder does not provide this kind of information about total compensation, it is still a useful tool and lots of fun.  For instance, here’s one use for the salary finder. 

Back in November, the Federal Times  revealed that "as the U.S. Postal Service was careening toward a record $8.5 billion loss in 2010, it was paying more than three dozen top executives and officers salaries and bonuses exceeding that of Cabinet secretaries."  A list was not available at that time, but using the salary finder, we’ve produced a list of the 38 postal executives earning the highest (base) salary as of February 2012.  You can see the list here.

Searching the salary finder for zip code 20260, the zip for postal headquarters at L'Enfant Plaza, and then sorting by salary, we’ve learned that there are over one thousand employees in HQ who earn $100,000 a year or more.  

We've also analyzed the data for the top 300 salaries in HQ, the 28 Vice Presidents (not all are in HQ), the 49 District Managers, and 57 plant managers.   (There are over a hundred job titles listed on the website, so we probably missed a few other high-paying jobs.) 

There are 415 employees who fall into one of these categories.  You can see a list of their salaries here.  We’ve omitted names as a courtesy, but if you’re curious about anyone in particular, the salary finder can help.

The salaries of these 415 employees range from $103,480 to $276,840, and the average is about $152,500.  Here’s the breakdown:  

Number in group
Average Salary
Average years of service
Top 300 salaries in HQ
Vice Presidents
District Managers
Plant Managers
Combined list

The salary finder also provides the date of hire for postal employees, from which we’ve calculated years of service.  Most of these 415 executives and managers have put in a lot of time at the Postal Service, some as many as 44 years.  The median is 28 years, and the average is 24 years.

If you’d like to put some faces on some of the top earners, the USPS website provides an organizational chart — complete with photos — of Postal Leadership, the 37 folks running the show.

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