In a multimethod analysis, RAND researchers assess whether the military should continue using its 40-year pay table, implemented in 2007, to retain the most-experienced officers, warrant officers, and enlisted personnel, as well as more-junior personnel aspiring to higher ranks. Alternatively, could such retention be equally achieved by reverting to a 30-year pay table, and how much special and incentive pay would be required?
Retention, Incentives, and DoD Experience Under the 40-Year Military Pay Table
Published Aug 3, 2016
- How many personnel remained on active duty past 30 years of service since 2007?
- What were the additional costs since 2007 of operating under the 40-year rather than the 30-year table?
- What were the effects on retention of the 2007 and 2014 changes to military pay?
- Is it useful for the military to continue the 40-year pay table to meet retention goals, or could the retention of experienced personnel be achieved with a 30-year pay table?
In 2007, Congress extended the military's basic pay tables to 40 years to provide an incentive for the most-experienced members to continue to serve. In 2015, the Senate Armed Services Committee requested that the U.S. Department of Defense review the 40-year pay table and report on whether it is still necessary for retaining experienced personnel or whether such retention could be equally achieved with a 30-year pay table. RAND researchers were asked to assist in this review, and this report documents their analysis. Using a multimethod approach, including semistructured interviews and RAND's Dynamic Retention Model, researchers found that while both a 40-year and 30-year table could be equally effective in sustaining retention (as long as the services would have adequate special pay to manage retention under a 30-year table), continuing with the 40-year table is preferred. It performs well, and its financial cost is relatively small; in contrast, reverting to the 30-year table could adversely affect morale and perceptions about the stability and value of military compensation overall.
Quantitative Analysis Results
- Our tabulations revealed that the number of active-duty personnel with more than 30 years of service increased by 58 percent between 2007 and 2014. However, while these tabulations suggest that the 2007 pay table change had a substantial effect, we cannot attribute a causal effect.
- The Dynamic Retention Model analysis shows that the cost of keeping the 40-year table is relatively small, resulting in a 1.1-percent change in active-component personnel cost relative to using a 30-year table with special pay to sustain retention.
- The Dynamic Retention Model analysis made it clear that the changes implemented in 2007 increased steady-state retention for officers, and, to a smaller extent, for enlisted personnel. However, reimposing the cap on basic pay in 2014 had virtually no effect on the retention of Army officers with fewer than 34 years of service in the steady state.
Support for Continuing the 40-Year Table
- Reverting to a 30-year pay table would adversely affect the retention of officers and enlisted personnel, but retention could be restored through special and incentive pay. Therefore, a 30-year table could be as effective as a 40-year table, as long as the services had adequate special pay to manage retention.
- The theoretical literature supports a skewed compensation structure that provides incentives to stay, especially among the most-talented individuals, and to continue to perform and supply effort through 40 years of service.
- Reverting to the 30-year table could adversely affect morale and perceptions about the stability and value of military compensation overall.
- Virtually all of the experts we interviewed supported keeping the 40-year pay table.
- While both a 40-year and 30-year table could be equally effective in sustaining retention as long as the services would have adequate special pay to manage retention under a 30-year table, continuing with the 40-year table is preferred. It performs well, and many argue that it improves readiness and flexible personnel management. Furthermore, given the increase in the number of personnel with more than 30 years of service since 2007, reverting to a 30-year table will affect far more people — 58 percent more people — than it did when a 30-year table was in effect prior to 2007. The Dynamic Retention Model analysis showed that the cost of maintaining the 40-year table is relatively small — a change of 1.1 percent in active-component personnel costs. Given the disadvantages of reverting to a 30-year table and the advantages of keeping the 40-year table, continuing with the 40-year pay table is a sensible course of action.