Policies for Managing Reductions in Military End Strength

Using Incentive Pays to Draw Down the Force

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

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Research Question

  1. Can the Army set voluntary separation pay amounts to effectively draw down its force?

Office of the Secretary of Defense Cost Assessment and Program Evaluation requested RAND National Defense Research Institute help in developing an efficient means of decreasing force size. The researchers proposed the use of voluntary separation pay (VSP) and showed how it can be designed to meet drawdown goals within a certain time frame without over- or undershooting the goals. RAND's dynamic retention model determined the appropriate VSP levels by year of service to achieve drawdowns of alternative sizes for the active component Army, and the approach could be applied to other services. The analysis was done for enlisted personnel and officers and for the steady state and the transition to it.

The analysis suggests that VSPs can draw down the force rapidly without creating a hollow force or bathtub. Implementing VSPs requires an increase in outlays, but net decreases in personnel costs can still be realized even if selected military occupational specialties are cut deeply. The net decrease in personnel cost is less if a VSP is offered for multiple years, if members anticipate that a VSP will be offered in a future year, or if deeper cuts are made to portions of the force versus a shallower across-the-board cut. For a 10-percent cut in the force, net decreases range from $6.4 billion to $7.4 billion in 2013 dollars over the first ten years. The Army would initially require $1.7 billion to $3 billion to implement VSPs for such a cut, depending on how it is done.

Key Findings

Voluntary Separation Pay Can Draw Down the Force Evenly to a Level Close to the Desired Steady-State Size and Experience Mix Within a Relatively Short Period with No Follow-On Effects Requiring Management in Later Years

  • Voluntary separation pay (VSP) can draw down the force rapidly without creating an imbalance in the experience mix of personnel (a bathtub).
  • A higher VSP is needed to make a deeper cut in force size, but net personnel cost decreases even so.
  • A lower VSP offered for multiple years can achieve the same end-strength goal as a VSP offered for one year, but net decreases in personnel costs are lower because more personnel remain on hand while the VSP is offered.
  • If members anticipate being offered VSP, a higher VSP is required to reach a given target.
  • A 10-percent cut in the force would produce a net decrease in the present value of active component Army personnel costs of $6.4 billion to $7.4 billion over the first ten years.
  • The cost of implementing VSPs is $1.7 billion to $3 billion for a 10-percent cut in the force, depending on whether the VSP is implemented for a window of one, two, or three years and whether the cut is across the board or concentrated on a portion of the force.
  • VSPs can be targeted on particular groups, e.g., poorer performers or personnel in overstrength occupations, and thereby induce separations from those groups.

Recommendation

  • The Army and other services can use the dynamic retention model to determine appropriate levels of voluntary separation pay for achieving desired drawdown levels in the desired time frame.

Table of Contents

  • Chapter One

    Introduction

  • Chapter Two

    Policies to Achieve a Drawdown

  • Chapter Three

    An Overview of the Approach

  • Chapter Four

    Results

  • Chapter Five

    Concluding Thoughts

  • Appendix

    The Dynamic Retention Model

This research was sponsored by Cost Assessment and Program Evaluation in 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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