Assessing Compensation Reform

Research in Support of the 10th Quadrennial Review of Military Compensation

by Beth J. Asch, James Hosek, Michael G. Mattock, Christina Panis

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Abstract

Military compensation is a pillar of the all-volunteer force. It is a fundamental policy tool for attracting and retaining personnel, and its structure — and the incentives implied by its structure — can affect U.S. service members' willingness to join, exert effort, demonstrate their leadership potential, remain in the military, and, eventually, exit the military at an appropriate time. Military compensation is a composite of current pay and allowances, special and incentive pays, health benefits, disability benefits, retirement benefits, and other benefits. Its importance to the readiness and morale of the force is such that it is reviewed every four years to determine whether it is adequate to meet the U.S. military's objectives. To inform the 10th Quadrennial Review of Military Compensation, this monograph presents an in-depth examination of the mix and structure of the U.S. military's current retirement-benefit system and several policy alternatives. The study included the development of a model that was estimated and used to run a series of simulations based on active-duty and reserve personnel data to track the careers and potential decisionmaking of military personnel across the services. The simulation results were then assessed in terms of their cost-effectiveness and ability to meet the services' expectations for accession, retention, and career mobility.

Table of Contents

  • Chapter One

    Introduction

  • Chapter Two

    The Case for Retirement Reform

  • Chapter Three

    Analytic Framework

  • Chapter Four

    Estimates and Base-Case Results

  • Chapter Five

    Simulation Results

  • Chapter Six

    Conclusions and Policy Implications

  • Appendix A

    Description of Current Retirement Systems

  • Appendix B

    Estimation Method and Data Sources

  • Appendix C

    High Year of Tenure

  • Appendix D

    Comparisons with Different Discount-Rate Assumptions

The research described in this report was prepared for the Office of the Secretary of Defense (OSD). The research was conducted in the RAND National Defense Research Institute, a federally funded research and development center sponsored by the OSD, the Joint Staff, the Unified Combatant Commands, the Department of the Navy, the Marine Corps, the defense agencies, and the defense Intelligence Community.

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