Summarizes the authors' previously developed theoretical model of compensation in a large, hierarchical organization like the military that permits an analysis of the issues surrounding the design of military compensation. Presents an empirical version of that model and uses it to evaluate the current and alternative military retirement systems in terms of their implications for force structure, cost, and productivity (i.e., personnel effort and ability sorting); the implications for the current military compensation system, and the implications of several proposals (including several of the authors' own design) that change the structure of the military retirement system. The authors estimate that under certain circumstances the proposed systems would permit the Department of Defense to maintain forces at least as capable as today's at no higher cost.
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