How to Read
Our Annual Report
2000 Highlights
Letter from
the Postmaster General/CEO
2000 Year
in Review
Delivering
the Future
The Governors
of the Postal Service
Audit Committee
Financial
Section
How to Read
Our Financial Statements
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2000 Annual Report
- page 33 of 70
Workers' Compensation
Like any business or government agency, we establish a budget of
estimated expenses each year. As we have discussed earlier in this
report, when expenses vary significantly from this plan, our financial
results are affected. For this year we had budgeted or planned on
workers' compensation costs of approximately $745 million, basing
our budget on trends that we expected to continue. In fact, the
actual results we discuss in the Notes to Financial Statements are
25% or about $180 million higher than our forecast.
A number of factors contributed to this unexpected increase. This
year the Department of Labor accelerated their processing of claims
and the rate of claims they approved. Because of these changes we
had to revise our estimated future costs for all active cases. Other
factors are trends that we expect will continue to affect workers'
compensation costs in the future. There was an increase in the number
of nontraumatic "occupational" injuries reported. In addition, average
costs per medical claim increased by almost 14%, reflecting the
resurgence of medical inflation that has also affected our health
benefit premium costs. All of these factors acted in concert to
increase our workers' compensation costs substantially and directly
reduce our bottom-line results.
It is important to know that our employees are covered by the Federal
Employees' Compensation Act (FECA), which is administered by the
Department of Labor's Office of Workers' Compensation Programs,
which makes all decisions regarding eligibility for benefits for
injured workers. We pay all workers' compensation claims out of
postal funds. Thus, our bottom line is directly affected every time
an employee is injured.
We record as a liability the present value of all the future payments
we expect to make to those employees receiving workers' compensation.
At the end of 2000, we estimate our total liability for future workers'
compensation costs at $5.8 billion. At the end of 1999, this liability
was $5.5 billion. In 2000, we recorded $925 million in workers'
compensation expense, compared to the $614 million we recorded in
1999. (See Note 2 of the Notes to Financial Statements for details.)
Economic Value Added
Economic Value Added (EVA) is one of the measures we use to evaluate our total financial performance. EVA is calculated after determining net operating income, and subtracting a charge for the capital we use to produce that income. Additionally, we apply an indexing factor that removes the impact of postal price increases and inflation. This gives us a true year-to-year comparison of our operating performance. Because it is measurable, we can clearly set goals and quantitatively measure improvement. We think EVA is important because it is the recognized yardstick used by many successful businesses. As many of these companies do, we use this measure as the basis of performance based pay for our management employees.
A strong EVA is a valuable indicator of overall financial success,
but it does not guarantee pay for performance. EVA determines
only the amount of the funds that may be used for performance awards.
Actual payouts are determined by our success in fulfilling the targets
we set in our Annual Performance Plan. We use a balanced
set of nine targets that measure our service to customers, improvements
for our employees and our financial performance. If we meet these
targets, the Variable Pay Program rewards our performance. For example,
if we meet the goal of delivering 93% of First-Class Overnight Mail
on time (measured by what we call the External First-Class Overnight
score), we may receive a portion of the amount determined by EVA as eligible to be paid as a performance incentive. EVA is thus one part of our means
for rewarding employees by tying compensation to measurable performance.
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Americans on the move
17 percent of Americans change addresses annually.
43 million people move annually.
Average American moves 11 times in a lifetime.
One of every six families moves each year.
We processed 44 million changes of address in 2000.
(Forwarding is built into the price of a First-Class
stamp.)
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