Cover: Capping Retired Pay for Senior Field Grade Officers

Capping Retired Pay for Senior Field Grade Officers

Force Management, Retention, and Cost Effects

Published Mar 12, 2018

by Beth J. Asch, Michael G. Mattock, James Hosek, Patricia K. Tong

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Research Questions

  1. Why has there been an increase in recent years in the number of field grade officers with more than 30 years of service?
  2. What would be the effects — on cost savings, morale and retention, promotion rates, and force management — of capping retired pay so that only members in the highest grades and with the most years of service would receive the highest retirement benefits?
  3. Would special and incentive pays be suitable as a retention tool as an alternative to a retired pay multiplier that increased with years of service beyond 30 years?

The 2007 National Defense Authorization Act (NDAA) made several compensation changes to increase the incentives for the most senior personnel to stay in service longer. However, the number of field grade and noncommissioned officers with more than 30 years of service has increased significantly since 2007 — something that was not a target of the 2007 NDAA. In response to this finding, the Senate Armed Services Committee directed the Secretary of Defense to review the advisability and feasibility of capping mid-grade retired pay so that only members of the highest grades and with the most years of service would earn the highest retired pay. This report provides analysis to support the Secretary of Defense review.

The RAND team took a multi-method approach focused on active duty personnel and drew on expert knowledge, administrative data, and advanced econometric methods for estimating retention behavior and for simulating policy responses. The researchers found that the increase in senior field grade officers was driven by an increase in officers with prior enlisted service. Experts provided several possible explanations and cautioned that capping retired pay for these officers would hurt retention, morale, and, possibly, the accession of officers who come up from the enlisted ranks. The researchers used RAND's Dynamic Retention Model to estimate the effects of using special and incentive pays to offset losses in retention but found that doing so would result in a net cost increase. The authors conclude that capping retired pay for senior field grade officers would have no positive benefits and could result in harmful outcomes with respect to force management and cost.

Key Findings

Reasons for the Increase in the Number of Senior Field Grade Officers

  • The increase in mid-grade officers with more than 30 years of service was driven by an increase in officers with prior enlisted service.
  • The increase in officers with prior enlisted service may be due to an increased requirement for longer careers among those with specialized skills and knowledge; officers with enlisted experience are often a key source of technical expertise.
  • The increase could also be a residual effect of commissioning enlisted personnel to meet prior officer shortfalls. These officers stayed in service, so their total years exceeded 30 although years of commissioned service were less than 30.

The Effects of Capping Retired Pay

  • Experts felt that capping retired pay along the lines suggested by the Senate Armed Services Committee would hurt officer retention and morale and, possibly, the accession of officers who come up from the enlisted ranks.
  • Simulations using RAND's Dynamic Retention Model support this view: Capping retired pay would result in fewer officers with prior enlisted service staying, especially beyond 30 years of total service.

Use of Special and Incentive Pays

  • Simulations using RAND's Dynamic Retention Model indicate that using special and incentive (S&I) pays to restore overall retention would result in a net cost increase.
  • Experts said that, even with the addition of S&I pay, a retired pay cap could be viewed by members as a compensation cut and, because S&I pay is subject to uncertainty, it could be considered less valuable than retired pay.

This research was prepared for the Office of the Secretary of Defense and 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.

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