The Military Compensation and Retirement Modernization Commission is releasing its report today, further fueling a debate that has thus far been construed mainly in terms of costs versus commitment to our troops. What this narrow frame misses is the opportunity for both sides – and by extension, the nation – to benefit from this reform effort. By expanding what is considered part of the compensation package, we can reframe the debate to satisfy both sides while updating military personnel policies to compete for talented millennials.
Proponents of military pay and benefits reform cite ballooning personnel costs that will ultimately hamstring our national security capabilities. A familiar tagline points to the unsustainable rate of growth in these costs since 2000, which, with several assumptions, will completely consume the Department of Defense budget by 2039. The cost per servicemember has dramatically increased to an average of more than $100,000 per troop, forcing the military to shrink its manpower to meet arbitrary budget caps. Cost-cutters describe this as a conflict between “living well” and living at all: increasing military pay costs restrict the money to furnish the latest in technology and training, and American troops may find themselves without the overwhelming advantage they have possessed since Desert Storm.
Pay protectionists counter many of these claims. Their first argument is that costs are relative. While military personnel costs did double between 2000 and 2012, the total DOD budget increased by 130%. Some quick math indicates personnel costs actually decreased over this time period as a percentage of the overall budget. And though the cost per servicemember has increased as the military shrank, it’s clear that the proportionately higher value of each individual in a smaller force warrants investment. As end-strength decreases, every servicemember’s individual contribution counts more.
Protectionists also point out that the Pentagon is only showing us a slice of the graph. Much like a stock market snapshot of last week tells us almost nothing about the previous (or next) ten years, only looking at pay and benefits costs since 2000 can be misleading. In fact, the history of the all-volunteer force depicts a sawtooth pattern in which military pay and benefits grossly lag civilian equivalents, rise to parity, and fall again on fears of unsustainable personnel costs. The largest disparity occurred in 1996 when military pay lagged civilian pay by more than 13%.
Though technically pegged to the Employment Cost Index – a Bureau of Labor Statistics number that tracks wage increases in the civilian sector – Congress has routinely increased or reduced military wages. Since 2000, it has repeatedly boosted military salaries specifically to catch up with civilian equivalents, which accounts for a large percent of the growth identified by Pentagon budgeteers. These increases can only be projected into the future if Congress allowed military pay to rise above parity, something they have not done. In fact, they have capped the annual military pay raise below inflation in 2014 and 2015, thus beginning the downward slope of the current sawtooth.
In sum, pay and benefits protectionists are right to challenge the cost-cutters assertion that personnel costs will increase linearly in future at the same rate they have since 2000. But their argument usually goes deeper, engaging not only on a fiscal level but on an emotional or even moral one by highlighting the obligations and promises made to a generation of volunteers. This is where a fresh perspective may be useful.
The original Gates Commission report to President Nixon advocating for the all-volunteer force included numerous recommendations on how to manage the new military’s pay and benefits now that it would be competing for candidates in the open market. The Department of Defense ignored almost all of these, adopting only the recommendation to raise the pay for those in entry level ranks sufficiently to attract volunteers into service. Service commitments – mandatory periods during which members cannot leave the military – and the promise of a 20-year retirement were expected to do the rest.
Since that time, the services have devoted immense resources to recruitment in order to get people in the door and almost universally increased service commitments to keep them in: for example, the service academies’ commitments have increased from four to five years, and Air Force flight training commitments have increased from eight to ten years. Further, while retirement benefits have become leverage for retention at the mid-career mark, millions of dollars fund bonuses to bridge the gap between the expiration of commitments and the draw of the 20-year pension for shortfall grades and skillsets. Examples in the Air Force include money for some pilots (currently $225,000 paid over nine years), intelligence officers and, recently announced, for operators of remotely piloted aircraft.
There is no requirement to use such crude sticks and carrots to incentivize behaviors in the all-volunteer force, and increasingly, every reason not to. Studies on the rising millennial generation indicate that millennials are eager to serve a cause greater than themselves but chafe under arbitrary restrictions and anachronistic presumptions that they are motivated solely by money. These millennials, who currently comprise the field grade officer corps and below, will not only gladly trade dollar compensation for agency and freedom of action but may well pass up the lucrative retirement or retention bonus in order to preserve their freedom to maneuver. Moreover, those most likely to port their skills to the private sector are those with a) the most marketable skills to offer and b) the most willingness to take calculated risk. These types of troops are exactly the ones our military needs to retain.
This suggests a need to reform the entire paradigm of personnel management, including but not limited to military pay and benefits, but not for the reasons cost-cutters identify. Rather, keeping our all-volunteer force healthy and strong at the individual soldier level requires radical changes to our 1950s-vintage compensation system. Some of the original Gates recommendations spoke to pay and benefits as a force management mechanism and, reinterpreted, highlight the opportunity Congress has to link compensation to a broader human talent management agenda. Our recommendations jettison the one-size-fits-all system and seek to enhance flexibility and agency for military members to better customize individual benefits.
An a la carte benefit system customizable to a servicemember’s individual and family needs maximizes this flexibility. Private sector companies have long understood that flexibility in benefit selection – termed customizable or variable benefit plans – can be an asset in employee recruitment and retention. Essentially, employees are allowed to select their benefit package to balance salary, medical benefits, retirement packages, bonuses, work schedule, and even geographic location.
Imagine a scenario in which military members can select the benefits that fit their needs. Transferrable education benefits may have high value to some and little to others. Some members may prefer to receive retirement benefits as early as possible in order to preserve family security, and would sacrifice vacation days or overall salary compensation to get it. It is worthwhile to survey military members as to what they value, allowing this generation to speak for itself, rather than presuming a specific incentive structure. The next step is to allow individual members to select their benefit packages instead of mandating a one-size-fits-all approach. This individualization will appeal to the demand for agency that permeates the millennial generation and permit longer retention of those talented individuals who might otherwise leave for a better compensation fit elsewhere.
And for those who say it can’t be done in an institution that prizes uniformity, our allies in the Pacific prove otherwise: the Australian armed forces have implemented a broad version of this model, allowing servicemembers to select from an array of benefit packages. For example, an individual whose spouse receives medical benefits from a civilian employer may elect to surrender his own and be covered under the civilian plan. In return, this servicemember can opt for an earlier distribution of retirement pay or a larger overall payout.
Finally, traditional discussions of pay and benefits center on monetary compensation and equivalent services – vacation days, healthcare, grocery discounts, etc. Let’s think more broadly about what possible benefits might provide incentives to military members.
What about the ability to select your geographic location? For servicemembers with spouses who want independent careers, this “benefit” could be invaluable and reflect the difference between talent retention and talent loss. A spouse earning $50,000 per year would out-earn, for instance, a pilot’s $225,000 bonus over the course of two three-year assignments, and that doesn’t account for the potential gain of a happier family life. What about the ability to telework or adjust your hours? Again, to some this would be a strong incentive worth sacrificing some monetary compensation. Or the ability to apply for a job, instead of being arbitrarily assigned? Or to take a sabbatical when needed for education or family concerns?
When we broaden the aperture of what can be considered “benefits” the totality of the industrial force management system is at play. But perhaps this is the appropriate way to discuss compensation for the current generation of those who serve. They are willing to sacrifice for their country but they want agency and individual recognition in a bureaucracy that codes people by rank and job, not talents and desires. If we offered simple structural benefits such as higher geographic stability perhaps talent retention would rely less heavily on financial compensation.
Thinking about the issue of military pay and benefits in this light sidesteps the binary and restrictive debate between protectionists and cost-cutters. Injecting flexibility and agency into the system saves defense dollars by ensuring they aren’t spent on force-wide benefits that aren’t valued by all servicemembers. It also maintains the promise to our men and women in uniform by being more responsive to the needs of individual servicemembers – and their families’. Most important, this outlook may actually improve retention of our best and brightest, recognizing that the desires of the millennial generation are different from the desires and needs of those who served when these benefits were established. And that makes reform a national security imperative, not on the basis of cost, but to hold on to those talented men and women who serve and protect.
Miriam Krieger is an Air Force officer and PhD Candidate at Georgetown University. She’s currently completing a fellowship at The Brookings Institution writing on U.S. security cooperation assistance and military talent management.
Kevin Kenney is an Air Force strategy officer specializing in Information Operations. He has a Masters in Public Policy from George Washington University and flew two combat tours in Afghanistan in the F-15E.
The views expressed are their own and do not reflect those of the U.S. government, the Defense Department, or the Air Force.
Crutch 
WS 
Krogher 
BE 
Dick Klass 
Louis T Dechert 
We're All Mercenaries Now 
CDRRET 
GK 
James B. 
Great article. Given the operational demands of the last 13 years, I’ve lost so many of my leave days come October 1. Additionally, I’ve been “forced” to take leave to avoid losing those days, only to have a popup task that required me to be at work. If I could save 20 days a year of leave, which is about what I normally do, then tack it on to the end of a 20 year career, that would be great.
Who could resist agreeing with this cool-headed thought process of enlightenment? This analysis is fresh, deep, and well thought out, right?
To compare the military pay and benefits to “our” civilian counterparts is disengenuous by negating the other half of the story.
How many civilian jobs will send their employees to war? And if their employee refuses, the employer can the option to perfer
WS,
I don’t think the profession itself matters here. Professions are different; people are not. What I mean is that the motivating factors that encourage an employee to maintain his employment with a certain employer can be universal within a generational context. So, my fellow millennials and I are motivated by like-minded incentives, regardless if we work in Silicon Valley, Wall Street, Main Street, or the military. The uniqueness of the job gets most of us in the military door, but we need incentives tailored to our generation to keep us there. This was recognized (sort of) during the Gates Commission. But, as the article displays, by the 1970s, the system of compensation was already a generation old, and it hasn’t been changed for two more generations of service member.
I did not see where the author was trying to compare military pay and benefits to civilians other than that military pay and benefits have always lagged behind the civilian sector. The intent of the article is something that is currently being hotly debated in the military and Congress–creative personnel management. The military does lose a lot of talented people every year because of the current policy of just throwing more money around as an incentive to stay. Money isn’t everything and a lot of people do leave due to family reasons and the inflexibility of selecting their geographic assignments. I do believe DoD and all of the services need to modernize their incentive scheme to retain the right quality of talent–especially as the services continue to downsize and demand “more with less.”
I hope that the Commission will show as much out of the box thinking as this piece does. But I doubt that it will. Too bad.
This is a thoughtful and seemingly fresh look at the problem of personnel costs and benefits. It does advance the discussion beyond the current stalemated cost versus cuts rut.
HOWEVER, as I studied the presentation (with bias–I always opposed the end of the draft, partially because of the easily discernible—in 1969—ultimate costs) a nagging unease crept into my thoughts.
It was this: the standing armed forces exist to protect national interests. Ultimately the entire structure is deemed necessary to place and support the relatively few combat forces on the objective–defensive or offensive. Once upon a time the ratio of support to combat was over 50 to 1 (depending upon the type of combat mission).
This fact is hard to comprehend–how does the hugely salaried Defense Department (DOD) structure contribute to the combat soldier at the point of contact/battle. In theory even the acquisition bean-counter exists only for that sole soldier/marine/sailor/airman. There is the rub: personnel policy and practice for the huge strap-hanger establishment riding on the combat soldier’s back such as discussed in this article does not address the problem. Coming to the end of the article I noted that both the authors–highly qualified–were US Air Force members. Personnel management and retention requirements–hence incentives, etc.–are worlds apart between that front line warriors (and their families) and a crew chief at any airbase.
A good, if simple example, is the radically different length “combat tours” of the various services in IRAQ and IRAN. The Army “grunt” spent up to 15 months; the airmen four to six months, the marine six to nine months. Any successful career incentive and benefit system would have to begin just as unbalanced to address such a situation. One size does not fit all.
Ruthlessly cut the huge overhead (DOD) and you will go a long way toward solving the cost problems.
(Career Combat and Training Commander, 48 months combat, three wars)
We could solve all these problems in two simple steps:
1) Transfer the expense of administering the military health insurance system OUT of the DoD. Yeah, it’s cost-shifting, but at least we won’t have generals complaining about how expensive health insurance is. They should be worrying about other things.
2) Allow retirement-eligible Soldiers and Officers the option of cashing-out pensions, ie recieving a one-time lump-sum payment in lieu of a life-time of pension payments. It would save the DoD big-time money in the long term, and allow retirees (if the money is invested prudently and not completely exhausted) to in-effect pass their pension to their heirs instead of nothing (since the pension payments die with you).
There are a lot of consolidations that need to happen, but no one likes change.
In addition to Health Care, DOD needs to ask itself why we are still in the Exchange and Commissary business? Other than overseas, why do we still have these things? Just show your Military ID at the Walmart, Target, Kmart, etc., checkout, and give me a 20-30% discount. One base gyms? Show your Military ID at a Bally’s, LA Fitness, etc., and you workout for free.
The lump sum payment has been brought up before. “Perception alters reality”…..it was killed because the higher ups do not want the perception we are making millionaires out of service members. Even though we all know what 40 years of retirement actually produces.
Social Security works the same way…if I die before my 60s, then the Government keeps everything that I put in, as well as my employer.
The USAF recently executed another “pay and benefits reform” COA that significantly reduces cost. They’ve just simply discard company and field grade officers. No airmen, no pay. This also relieves the service of any obligation to fund retirement or medical benefits after these RIF’d personnel separate. Of course, it may be difficult to cut officers that in their thirteen years of service, deployed for five ground combat tours, ranked in the top 10% of their peers on every performance report and were selected and commanded a squadron as a Captain (the unit subsequently winning Command and USAF level awards); but I’m sure the money saved will be highly touted and more than overshadow the disenfranchisement of a few “Mission Support” Captains and Majors. This COA is further legitimatized by its repeatability. The USAF can surge recruitment, draw young patriotic Americans away from their civilian jobs (like teaching/coaching high school), train them to fight the next war and then after the fighting is done, or nearly done, if they’ve survived, the AF can just cut them loose with a hardy handshake.
A huge issue that the recent report missed was the issue of “working for half pay” after hitting 20 years. I realize the pension paychecks aren’t actually half the whole compensation, but the DoD is still competing with itself for those senior enlisted and command-level officers.
My suggestion: Don’t start retirement checks until age 60, like the reserves, but make up the difference with a contribution to TSP, calculated for a break-even point about 22-24 years in service (aiming for the separation point of non-promoting E-7s and O-6s). The 20-and-out crowd would lose a bit, but not a lot, and would gain flexibility with their TSP lump, and those who stayed longer would make out even better.