A Fresh Take on the Military Pay and Benefits Debate

January 29, 2015

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.