U.S. Military's Increased Use of Bonuses Has Improved Recruitment and Retention

The increased use of cash bonuses by the U.S. Department of Defense to encourage military enlistment and reenlistment had a positive effect on recruiting and retention in the armed forces, according to a new study by the RAND Corporation.

Until recently, the wars in Afghanistan and Iraq have placed greater stress on military recruitment and retention. Recruit quality—defined as the percent of recruits who have earned a high school diploma and who score in the top half of the Armed Forces Qualification Test—fell between 2003 and 2008. In addition, the four service branches, particularly the Army, struggled to meet recruiting goals.

The Department of Defense budget for enlistment and reenlistment bonuses increased sharply from 2000 to 2008, more than doubling to $625 million for enlistment bonuses and rising more than 50 percent to $1.4 billion for selective reenlistment bonuses. The increase has led some policymakers to question the scope of bonuses and their efficiency in increasing the supply of personnel to the armed forces.

"Enlistment bonuses were an important contributor to the Army's success in meeting its recruiting objectives in recent years," said Beth Asch, the study's lead author and a senior economist at RAND, a nonprofit research organization. "Using models we developed, we estimate that high-quality Army enlistments would have been 20 percent lower between 2004 and 2008 in the absence of the increase in enlistment bonuses."

Asch and her colleagues also estimate that reenlistment bonuses helped improve the rate of people who extended their commitment to the Army after their first term ended. The effects of reenlistment bonuses for the other services varied. The impact was positive for both the Navy and Marine Corps, but not as helpful for the Air Force.

RAND researchers assessed whether bonuses have contributed to recruiting success and retention, whether bonuses have been used flexibly and whether bonuses have been used efficiently. The analysis examined each military service, but had a focus on the Army because that is where most of the increased bonuses were paid.

The study found that the size and scope of enlistment bonuses increased in the Army between 2004 and 2008. The average Army enlistment bonus increased from $5,600 to about $18,000 per soldier over that period, with the amount of the increase varying by occupational specialty. This suggests that the Army used enlistment bonuses to both expand the market for recruits and to channel them into specific job skills.

Navy enlistment bonuses increased too, but not to the same extent as the Army. In the case of reenlistment bonuses, the branches with the heaviest combat duties in Operations Enduring Freedom and Iraqi Freedom had the largest increases in bonus use and generosity. For example, almost 80 percent of soldiers reenlisting at the end of their first term in the Army and Marine Corps received a bonus during 2007.

The study also found that enlistment bonus programs were relatively more cost-effective for the Army than regular military compensation—defined as basic pay, the allowances for housing and subsistence, and the tax advantages associated with getting these allowances tax-free. But in the Army, the study found that recruiters tend to be slightly more cost-effective. The study estimates that the additional cost per recruit for enlistment bonuses is $44,000, increasing base pay is $57,600 and adding an Army recruiter costs $33,200.

In the case of reenlistment bonuses, the study found a range of estimates based on varying assumptions. The cost of an additional person-year of service at the first reenlistment point is $24,900 for the Army, $28,000 for the Navy, $17,000 for the Marine Corps and $70,000 for the Air Force.

The services also used enlistment and reenlistment bonuses in a flexible manner by varying bonuses over time and across occupational specialties. However, Asch said the analysis provides evidence that the services could improve their use of bonus caps.

The study found that bonuses were generally cost-effective in improving enlistments and reenlistments relative to pay. But Asch said more research is needed to determine the effect of bonuses on the supply of personnel to different occupations and whether a different mix and different levels of bonuses across occupations would have resulted in more enlistments and reenlistments for the same costs.

The study also recommends further research into the skill-channeling effect of enlistment bonuses. In addition, more work is needed to understand how different bonus levels influence the productivity of service members across different occupations.

The study, "Cash Incentives and Military Enlistment, Attrition and Reenlistment," can be found at www.rand.org. Other authors of the study include Paul Heaton, James Hosek, Francisco Martorell, all of RAND, and John T. Warner and Curtis Simon of Clemson University.

Research for the study was sponsored by the Office of Accession Policy within the Office of the Under Secretary of Defense for Personnel and Readiness, and was conducted within the Forces and Resources Policy Center of the RAND National Defense Research Institute, a federally funded research and development center sponsored by the Office of the Secretary of Defense, the Joint Staff, the Unified Combatant Commands, the Navy, the Marine Corps, the defense agencies, and the defense Intelligence community.