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Research Questions

  1. What are the parameters of a behavioral model of officer retention decisions?
  2. How can these parameters be used in a simulation model to help evaluate the effect that changes in compensation can have on the retention of officers?

The U.S. Department of Defense (DoD) needs the capability to assess alternative policies to enhance the retention of officers. This capability should be founded on empirically based estimates of behavioral response to policy and recognize that, when making decisions, members are forward-looking and take into account future opportunities and uncertainty and the outcomes of past decisions and policies. Further, the capability should enable DoD to simulate or predict the effects of alternative policies on officer retention and the costs of those policies. This report documents efforts to implement such a capability for officers and illustrates its use. The authors statistically estimate the parameters of a dynamic retention model of officer behavior and use the parameter estimates in a simulation model to help evaluate the effect that changes in compensation can have on the retention of officers and to show how policies that change the retention behavior of these officers can also change the aggregate retention of the population of officers at earlier or later years of their careers. The model can also be used to gauge the effect of alternative policies to enhance retention. In addition, the authors have created a spreadsheet version of the model that can provide quick estimates of the effect that bonuses, gate pays, and separation pays can have on retention in all years of service. This report provides the mathematical foundations and the source code for the spreadsheet model. The spreadsheet model is also available on request from the RAND Forces and Resources Policy Center.

Key Findings

A Dynamic Retention Model Estimates Parameters Underlying Officer Stay/Leave Decisions

  • The model estimates the likelihood of an environmental disturbance that would initiate the need for a decision, the taste for military versus civilian life, and variables that could influence that taste.
  • The model also considers personal discount factors and source of commission.

Simulations Using the Model Predict Retention Rates Under Current Policies

  • Year-to-year and cumulative retention rates are predicted using the model for three commissioning sources (Reserve Officers' Training Corps scholarship and nonscholarship officers and academy graduates).
  • Cumulative retention rates are near 100 percent when officers are under an initial service obligation but begin to fall once their initial obligation is complete.
  • Retention rates climb after ten years of service and stabilize after about 15 years because of the military retirement system.
  • Once members are vested at 20 years, retention rates decline dramatically as members retire from service.

Simulations Using the Model Predict Retention Rates Under Potential Future Policies

  • A bonus pay given at a particular year of service increases retention in that year and increases retention rates in years before and after.
  • A separation pay offered in a particular year of service lowers the cumulative retention rate in that and following years and raises the cumulative and year-to-year retention rates for prior years.
  • The effect of both the bonus pay and the separation pay is to increase retention in the years preceding the special pays.
  • A 10-percent increase in regular military compensation substantially increases the likelihood that Army officers would stay in the midcareer.

Recommendations

  • The Defense Manpower Data Center should collect data from each service to facilitate statistical estimation of models of officer behavior, specifically data salient to the initial obligation faced by an officer and whether a stay/leave decision was voluntary or involuntary.
  • Future work that marries this model of officer behavior to an equilibrium model of promotion or of officer inventory, or both, would be a useful direction to pursue in future work. This would involve bringing promotion speed and up-or-out rules into the model and pairing the model with an inventory projection model such that there was interaction between retention and promotion.
  • Further work to go beyond "what if," to come up with something like a cost-minimizing bonus and separation pay schedule to reach a given year-of-service profile could provide additional insights.
  • The extension of the model to include reserve participation is also desirable.

Table of Contents

  • Chapter One

    Introduction

  • Chapter Two

    Data, Model, and Estimates

  • Chapter Three

    Exploring Policy Options

  • Chapter Four

    Concluding Thoughts

  • Appendix

    Spreadsheet Implementation

This research was sponsored by the Office of the Under Secretary of Defense for Personnel and Readiness (P&R) 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.

This report is part of the RAND Corporation research report series. RAND reports present research findings and objective analysis that address the challenges facing the public and private sectors. All RAND reports undergo rigorous peer review to ensure high standards for research quality and objectivity.

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