Examining Efficient Compensation Methods for Military Personnel: Insights from Recent Research Report
In a recently published report, researcher Beth Asch of the RAND Corporation offers suggestions for enhancing the efficiency of military compensation, focusing on base pay, allowances, special pays, and performance incentives. Although the report primarily concentrates on the Army, its recommendations could apply to the entire military since most compensation elements are dictated by Congress and the Office of the Secretary of Defense.
Military personnel costs accounted for approximately 30% of the overall defense budget in fiscal 2023, amounting to $226 billion. This figure is expected to become the Pentagon's second largest account in 2025, according to the Congressional Budget Office.
Asch's report builds upon the findings of the recent 14th Quadrennial Review of Military Compensation (QRMC). The QRMC concluded that military compensation remains strongly competitive relative to the civilian labor market, with enlisted personnel and officers typically earning more than 82% and 75% of their civilian counterparts with similar education and experience, respectively.
However, Asch raises questions about the competitiveness of military compensation, noting that military pay exceeds historic Department of Defense benchmarks and has outperformed Pentagon targets in terms of recruitment, retention, and recruit quality. She proposes using a Defense Employment Cost Index (DECI) as an alternative to the existing Employment Cost Index (ECI), which may better reflect military demographics and offer a more tailored approach to setting annual pay raises.
The QRMC recommended maintaining enlisted personnel in the 75th to 80th percentile of the workforce and keeping officers around the 75th percentile. In addition to the QRMC's recommendations, Congress has recently approved a 4.5% across-the-board increase in troop pay, with an additional 10% increase for junior enlisted pay grades up to E-4, starting in April 2023.
The report also addresses the issue of performance incentives, acknowledging the difficulty in measuring performance in a team setting. Asch suggests switching to a time-in-grade model for promoting service members more quickly, which could increase performance and reduce costs. However, implementing this change would result in an average pay cut of around 6% for about a third of the Active-Duty force and potentially exacerbate pay disparities between service members at different grades.
Regarding allowances for food, housing, and other cost-of-living expenses, the report advocates for upgrades to the methods used for calculation. The basic structures for allowances have remained largely unchanged since the 1990s and have failed to keep pace with recent inflation and housing costs. The U.S. Department of Agriculture food plan that the Basic Allowance for Subsistence is based on was last updated in 2007 and does not meet Defense Department nutrition standards.
In addition, the report calls for incorporating all military personnel costs into the military personnel budget. This comprehensive view could help policymakers better understand the best ways to compensate service members to increase readiness, but currently, several costs, such as family housing, medical care, schools, commissaries, and other in-kind benefits exist outside the military personnel budget, which limits the ability of policy makers to gain a complete perspective.
The RAND report also recommends providing service members with a "cafeteria plan" that allows them to choose between cash and in-kind benefits, as well as re-evaluating the Blended Retirement System, which has been in place for eight years but lacks a thorough analysis of its effectiveness compared to the legacy retirement system.
- The Pentagon's second largest account in 2025, according to the Congressional Budget Office, will be military personnel costs, accounting for approximately 30% of the overall defense budget.
- Asch's report proposes using a Defense Employment Cost Index (DECI) as an alternative to the existing Employment Cost Index (ECI) for setting annual pay raises, believing it may better reflect military demographics and offer a more tailored approach to military compensation.
- The report suggests that incorporating all military personnel costs into the military personnel budget could help policymakers better understand the best ways to compensate service members to increase readiness, as currently, several costs exist outside this budget.
- The RAND report also recommends re-evaluating the Blended Retirement System, which has been in place for eight years, to analyze its effectiveness compared to the legacy retirement system and to provide service members with a "cafeteria plan" that allows them to choose between cash and in-kind benefits.
