Report
Setting the Level and Annual Adjustment of Military Pay
Dec 17, 2020
Analysis of a Time-in-Grade Pay Table for Military Personnel and Policy Alternatives
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Research Questions
- How would a TIG pay table affect military pay over a military career?
- Would a TIG pay table better facilitate lateral entry?
- How would a TIG pay table affect retention, personnel performance, and cost?
- What would be the cost to DoD to transition to a TIG pay table if DoD sought to hold member harmless in terms of experiencing no pay reductions in the first year of the transition?
- Can the advantages of a TIG pay table be achieved by reforming the current TIS pay table and/or adopting other pay or personnel policies?
Every four years, the U.S. Department of Defense (DoD) commissions a review of the military compensation system. In support of the Thirteenth Quadrennial Review of Military Compensation, begun in 2018, the authors of this report assess the advantages and drawbacks of using a table based on time in grade, rather than time in service, to set military pay. The primary means by which military personnel are financially rewarded for superior performance is through faster promotion, so a time-in-grade (TIG) pay table may increase performance by providing a permanent reward to those who are promoted faster. The current time-in-service (TIS) pay table provides only temporary financial rewards to those who are promoted faster. A TIG table would also provide higher entry pay to lateral entrants who enter the military at higher ranks but with no prior military experience.
Drawing on the work of past studies and using more recent data and modeling capabilities, the authors (1) simulate how basic pay would change under a TIG table over the course of a career for a variety of groups of service members, (2) simulate the retention, cost, and performance effects of the TIG table, (3) estimate the costs to service members and to DoD of transitioning to a TIG table, and (4) assess whether the benefits of a TIG table could be achieved by using alternative policies under the current TIS table.
The authors' analysis shows that better performers would be more likely to be promoted and retained under a TIG table, and that a TIG table could achieve about the same retention as the TIS table, at less cost per member and with improved performance. The principal disadvantage is that transitioning to a TIG table would be costly to DoD and disruptive to a significant fraction of the force: Almost one-third of the active force would experience a reduction in basic pay, and if DoD were to adopt "save pay" to hold members harmless, it would cost $1.39 billion, in 2018 dollars, in the first year. Expanding the services' ability to grant constructive credit — whereby services members who are promoted faster are credited with extra years of service for the purpose of the TIS table — could achieve some, but not all, of the advantages of a TIG table.
Key Findings
Better performers are more likely to be promoted and retained under a TIG pay table
- A TIG table would provide a permanent financial reward for early promotion, thereby providing greater incentives for performance.
- In simulations of basic pay for enlisted personnel, the discounted present value of basic pay is 11.3 percent rather than 5.5 percent higher for those promoted earlier under a TIG versus the TIS table, and the discounted present value of retired pay is 22.8 percent rather than 14.3 percent higher.
- A TIG table would also provide higher entry basic pay than the TIS table to lateral entrants.
- A TIG pay table would be more efficient than the TIS table: The TIG table could achieve about the same retention as the TIS table, at less cost per member, and with improved performance.
A TIG table has some disadvantages
- In a transition to a TIG table, nearly one-third of the active force would experience a reduction in basic pay, and if DoD were to adopt "save pay" to hold members harmless, it would cost $1.39 billion, in 2018 dollars, in the first year.
- Under a TIG table, warrant officers and commissioned officers who transition out of the enlisted force could experience a decrease in pay, but this disadvantage could be addressed by allowing the services to flexibly set the starting grade for those with prior enlisted service.
- Under either a TIG or a TIS pay table, differences in promotion speed can reflect factors other than differences in individual performance — but the TIG table still provides a stronger financial incentive for performance than the TIS table.
The TIS table cannot fully achieve the advantages of a TIG table, but with some policy changes it could come close
- Expanding the services' ability to grant constructive credit — whereby services members promoted faster are credited with extra years of service for the purpose of the TIS table — could achieve some, but not all, of the advantages of a TIG table.
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Table of Contents
Chapter One
Introduction
Chapter Two
A Time-in-Grade Pay Table and Estimates of Basic Pay over a Career
Chapter Three
Extending the Dynamic Retention Model to Analyze the Effect of a Time-in-Grade Pay Table
Chapter Four
Simulated Effects of a Time-in-Grade Pay Table on Retention, Performance, and Cost
Chapter Five
Transition Costs and Save Pay
Chapter Six
Two Alternative Performance-Based Policies Under a Time-in-Service Pay Table
Chapter Seven
Variation in Time to Promotion and Its Impact on Basic Pay
Chapter Eight
Discussion and Conclusions
Appendix A
Time-in-Service Pay Table for January 2018
Appendix B
Derivation of the First-Order Conditions for Optimal Effort
Appendix C
Probability of Being Promoted, by Service and Occupation
Research conducted by
The research was sponsored by the 13th Quadrennial Review of Military Compensation (QRMC) and conducted within the Forces and Resources Policy Center of the RAND National Security Research Division (NSRD).
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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