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Research Questions

  1. How well are recruiting and retention doing?
  2. How does military pay compare with civilian pay?
  3. Do manpower supply and pay conditions indicate that a slower rate of increase in military pay is reasonable?
  4. If so, how might this be done?

Conditions are favorable for slowing the increase in military pay. Recruiting and retention are in excellent shape, and manpower requirements are planned to decrease. Basic pay grew 45 percent from 2000 to 2011, more than the Employment Cost Index (ECI) (up 33 percent) and the Consumer Price Index (CPI) (up 31 percent). Regular military compensation (RMC) grew even more. After adjusting for inflation, RMC grew an average of 40 percent for enlisted members and 25 percent for officers. RMC growth was higher because of increases in the basic allowance for housing. RMC is above the benchmark of 70th percentile of civilian pay and stands at the 80th percentile or higher for enlisted personnel and officers with a bachelor's degree and the 75th percentile for officers with more than a bachelor's. The authors discuss several approaches to slowing the rate of increase in military pay: (1) A one-time increase in basic pay set at half a percentage point below the ECI, (2) a one-year freeze in basic pay, and (3) a series of below-ECI increases, such as ECI minus half a percentage point for four years. The first option has lower cost savings, leaves open possible further action, yet may create more uncertainty about future pay changes. The second and third options provide several times more cost savings but may be politically more costly.

Key Findings

Recruiting and Retention Are in Excellent Shape in the Active and Reserve Components

  • Recruiting quantity is being met and recruit quality is high.
  • Retention goals are typically being exceeded.
  • Recruiting and retention targets are likely to decrease as the Army and Marine Corps decrease their force strength over the next few years.

Basic Pay and Regular Military Compensation Have Increased Relative to Civilian Pay

  • Basic pay grew 45 percent from 2000 to 2011, more than the Employment Cost Index (ECI) (up 33 percent) and the Consumer Price Index (CPI) (up 31 percent).
  • Regular military compensation (RMC) grew even more. After adjusting for inflation, RMC grew an average of 40 percent for enlisted members and 25 percent for officers. RMC growth was higher because of increases in the basic allowance for housing.
  • RMC is above the benchmark of the 70th percentile of civilian pay and stands at the 80th percentile or higher for enlisted personnel and officers with a bachelor's degree and the 75th percentile for officers with more than a bachelor's.

There Are Several Options for Slowing the Increase in Basic Pay

  • (1) A one-time increase in basic pay set at half a percentage point below the Employment Cost Index; (2) a one-year freeze in basic pay or (3) a series of below-ECI increases, such as ECI minus half a percentage point for four years.
  • Option (1) has lower cost savings, leaves open possible further action, and may create more uncertainty about future pay changes. Options (2) and (3) provide several times more cost savings but may be politically more costly.

Recommendations

  • The Defense Department should slow the increase in military pay, which can likely be done without sacrificing recruit quality or member retention.
  • The Current Population Survey (CPS) median wage series should be used instead of the ECI as the basis for adjusting basic pay. The CPS median wage is more sensitive to changes in the civilian wage and is available on as timely a basis as the ECI.

Table of Contents

  • Chapter One

    Introduction

  • Chapter Two

    Recruiting and Retention Outcomes, 2005–2011

  • Chapter Three

    Changes in the ECI and Basic Pay, 2000–2011

  • Chapter Four

    A Comparison of ECI and Median Weekly Wage Increases Since 2000

  • Chapter Five

    Conclusion

  • Appendix A

    U.S. Code Title 37, Chapter 19, Section 1009, "Adjustments of Monthly Basic Pay"

  • Appendix B

    Health Care Cost Avoidance

  • Appendix C

    Civilian Employment Conditions

The research described in this report was prepared for the Office of the Secretary of Defense (OSD). The research was conducted within the RAND National Defense Research Institute, a federally funded research and development center sponsored by OSD, the Joint Staff, the Unified Combatant Commands, the Navy, the Marine Corps, the defense agencies, and the defense Intelligence Community.

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