Military Compensation: A Key Factor in America's Defense Readiness
(Archived document, may contain errors)
387 October 18, 1984 I MILITARY COMPENSATION A KEY FACTOR IN
AMERICA'S DEFENSE R EADINESS INTRODUCTION I From one-fourth to
one-third of every Defense dollar is The compensation package spent
on military personnel compensation role in managing force readiness
after all, is a major factor in persuading servicemen and women to
remain in uniform.
Military compensation is not a salary in the classic sense but a
total package of pay, tax-free allowances, and benefits both
immediate and deferred. It includes money (or provision in kind,
such as housing or subsistence); various services, incl uding
medical care; and deferred compensation, such as retirement and
survivor benefits. To maintain force readiness, military compen
sation must provide a level of remuneration to service members
th.at is in line with contemporary standards and perceived as being
fair and equitable in light of the hardships and risks incurred It
is a complex, interlocked package of pay and benefits that plays a
critical I I I When highly leveraged benefits--such as dependent
medical care, commissaries, and exchanges--are t rimmed, each
dollar fsavedlf may result in a loss of several dollars to military
families. The impact on recruiting, retention, or morale--all
aspects of force readiness--is seldom fully considered. Quali fied;
trained, and motivated people are the heart a nd soul o.f a ready
force. Policy makers at all levels need to better under stand the
role military compensation plays in the management of U. S. force
readiness This is the 5th in a series of papers prepared for The
Heritage Foundation's Defense Assessme nt Project directed by
Senior Fellow Theodore J. Crackel (U.S.
Army, Ret A THE MILITARY COMPENSATION PACKAGE Military compensation
is a package that includes basic pay allowances, benefits, and
special incentive pays. Military personnel costs in FY 1985 ar e
expected to exceed $65 billion. A recruit (E-1) now receives about
$575 per month in base pay. An Army Sergeant First Class (E-7) with
18 to 20 years of service makes about $1,5
00. The average Captain (0-3) would earn about 2,200 monthly, a
Colonel (0-6) about $4,1
00. Special incentive pay (such as flight pay) could add $100 or
more monthly, but only a small proportion receives it. The value of
allowances and bene fits is more difficult to assess but is
typically considered equivalent to a third or mo re of base pay.
Compensation (QRMC 1984, describes three major elements of military
compensation 0 The first, Regular Military Compensation (RMC is
used in reporting the value of filitary cornpensation to Congress
and in making comparisons with General Sc hedule salaries. RMC in
cludes: basic pay, which is prescribed uniformly by grade and years
of service; housing allowances or the value of actual housing in
kind; subsistence or the value of subsistence in kind and tax
advantages, which occur because of t ax-exempt allowances.
The second element is composed of special pay to provide incentives
to volunteer for particularly hazardous or difficult activity, or
to fill highly skilled or undermanned positions.
The importance of this has increased since the inception of the
All-Volunteer Force in 19
73. It is used to overcome manpower problems or shortages in such
areas as aviation, submarine duty parachute duty, and professional
health services. There also are bonuses for enlistment and
selective reenlistment The report of the Fifth Quadrennial Review
of Military 0 17 A third element consists of supplemental benefits
includ ing the retirement system.
These benefits, however, are an inherent part of the military
compensation package, highly valued by service pe rsonnel. Retired
and Retainer Pay is the single largest element; other items include
dependent and retiree medical care, government contri butions to
Social Security, leave and holidays, nondisability separation pay,
and commissaries and exchanges It is t his which most often is
Other special allowances are awarded for overseas duty dislocation,
family separation, and indemnity and survivor bene fits to
reimburse individuals for costs incurred as a result of
MAINTAININ G THE FORCE The primary purpose of the military
compensation system is to support mission readiness by ensuring the
overall manning objectives of the armed forces with the numbers and
quality of personnel needed to achieve force objectives. 3 The
spread o f service personnel by numbers, age, and grade reflects a
large input at the bottom with heavy attrition in the early years
and continuing attrition. Only a modest percentage remains in
uniform long enough to qualify for retirement compensa tion. It is
ess e ntially a closed system in which lateral entry is very
limited. The challenge is to maintain the necessary mix by year
groups, grade, and skills and to retain the best in each group.
'The compensation package is an important management tool in the
effort to accomplish this.
Because the majority of career service members is married
incentives must be family oriented. Initial entry may be an
individual choice, but in deciding to stay, family interests are a
serious consideration. Benefits affecting family well-being have a
pro found effect on retaining the kind of force the U.S needs.
THE UNIQUE CONDITIONS OF SERVICE While comparisons with private
sector wage scales are useful in a general sense, it is not
possible to simply adopt civilian pay models. There are too many
importan t differences in employ ment conditions, which have
required unique approaches to military personnel compensation.
In contrasting military duties with civilian employment, the Fifth
Quadrennial Review of Military Compensation described the unique
nature o f the military force. Its employer, the Executive Branch
of the federal government, can o require the force to fight
anywhere in the world and I I punish those who disobey o use the
force when and as long as it believes appropriate o dismiss
members, desp i te fully satisfactory performance without regard to
the preference of the individuals in mid-career for any momentary
convenience to the govern ment, while not allowing other
individuals to leave, even though they may desire to do so; and o
force individu al members to retire without regard to personal
preferences, family circumstances, or alterna tive employment, and
at the same time, retain the right to recall them to active duty if
the need arises.
Service members forfeit a considerable degree of persona l freedom
service person will serve, whether it will be with or without
family, and what other inconveniences may be required in meeting
national defense needs. This, of course, is in addition to being
subject to high risk situations. In effect, military p ersonnel
sign an irrevocable, unlimited liability contract with the govern
ment, a situation not duplicated in the civilian sector The system
prescribes how often and where the individual 4 The picture is
succinctly portrayed by Norman Augustine, a former Under Secretary
of the Army and now President of Martin Marietta Denver Aerospace.
Certainly, I would hate to ever have to defend a notion that the
military pay should not be comparable with civilian pay. But,
beyond that, the problem I have is that I am not sure what
I'comparabilityl' means. For example, in my operation we have
16,000 employees performing a variety of important tasks. But I
can't quite imagine having recruited them by saying, 'INOW this job
I'd like you to take Qill require you'being on c all 24 hours a
day, 365 days a year. You will be expected to pick up and move
every 3 years to anywhere in the world you are told, and frequently
you will be unable to bring your family with you. Often your family
will be required to live in substandard 4 0 -year old temporary
housing and, by the way, I can almost guarantee that if you spend
your entire career with us you will at some point be placed in a
position where you will be shot at by some people intent on
terminating your life prematurely What would one] consider to be
comparable pay for a job like that?
Yet there also are many advantages to a service career.
Were this not so, the All-Volunteer Force would be a failure.
The service offers challenges and opportunities like education
travel, and adventure that are not easily matched elsewhere.
There is also satisfaction in serving the nation for vital and
necessary purposes. Many are attracted to the military environ
ment, the associations, and the way of life. The sense of belong
ing in the military community is something special and worthwhile.
Butthis sense can be eroded by the perception--often created by
tinkering with the compensation/benefits package--that this
community is under attack does reflect the differences between
military and civilia n condi tions of employment The compensation
system should and BASIC PRINCIPLES 0 The Manpower System. There is
an interrelationship between manpower and compensation.
Compensation is linked to force structure and force readiness, and
in turn, to military plans and mission capability. Contrary to the
view of critics who choose to treat it as if it were part of some
autonomous labor market operation, compensation must be
synchronized with all the other aspects of the manpower system 0
Effectiveness. Compens a tion must be adequate, workable,
Compensation must and capable of producing the desired results.
provide a socially acceptable level of remuneration for the service
member and his family. It should include recognition for special
circumstances such as loc a tion and hazard. Reimburse ments, when
made, should cover all expenses incurred. 5 The need is to acquire
and retain the right number of people with proper grades and skills
to meet overall force needs. In so doing, it must balance (and
control) departure s along with inputs and retentions. Retired and
retainer pay plays a key role in this effort not only operate
effectively in peace but be able to phase suc cessfully to
mobilization and a war environment comparison both with the rest of
the American econom y and within the services. This is an elusive
concept, and thus is highly subjective. There is no objective way
to assess the market value of the special hazards, unusual
conditions, or the liability to armed combat The system must
accommodate mobilization planning, and must 0 Equity. This connotes
fairness and reasonableness, in 0 Stability and Flexibility. It is
necessary for morale with attendant effects on attraction and
retention, for'service members to have a reasonable amount of
economic stability. T hey need to be able to plan ahead. That is
only possible, however when military compensation is handled as a
single entity. Sta bility fails when individual elements of the
compensation package are singled out for attack.
Flexibility is the ability to reco gnize and respond to changing
needs and conditions. Nothing in the manpower world is static.
Changes are inevitable, and the system needs to accom modate in a
responsive but controlled manner 0 Institutional Support. In
addition to basic pay and allowance s, there is a special
aggreg?tion of benefits and pro grams geared to the support of
service members and their families.
These include housing, medical care, commissaries, exchanges morale
and recreational activities, family support programs, and survivor
programs. With over half of all service members married these
become very important, particularly in the face of frequent moves,
separations, and repeated school disruptions for dependent
children. under repeated attack. Not only are such programs needed
i n the military environment, they are considered entitlements by
most military families--a part of the compensation package. Cuts
are viewed as a breach of faith, and in turn, this translates into
manpower losses, which lead ultimately to increases in manp o wer
procurement and training costs. These bene-fits and services which
support service members and families, are'a fundamental part of
military compensation and must be given due weight in all major
decisions involving compensation Military commissaries, m edical
care., and housing have come THE RETIREMENT SYSTEM AND ITS CRITICS
The military retirement system is an important and costly piece of
the mil.itary compensation package in real terms in the last 20
years, but this cost growth will Costs have quadru p led 6 slow
markedly in the years ahead. Retirement costs reached $16.5 billion
in 1984, but will grow only to $19.4 billion (in constant dollars)
in the year 2000, to $22.4 billion by 2043, and then level off past
30 years--stems from the greatly increase d size of the active
force following World War I1 and the Korean War. The increase will
be much slower in the future, with little retiree bulge resulting
from Vietnam. In fact, with smaller force sizes future retiree
population growth will come largely fro m the Reserve Components
and a general increase in life expectancy.
Of all the elements of the compensation system, retired pay has
been most subject to scrutiny and criticism as being too costly.
The tendency has been to view retirement as a separate entity,
rather than part of the total compensation concept.
There are often direct comparisons with civilian retirement
systems. In fact, the basis and purpose of military retirement
differs from the civilian in several important respects retirement
benefits for active duty of 20 years or more; a National Guard an d
Reserve nondisability retirement system for the members of the
Reserve Components who qualify; and a disability retirement The
increase in the retired population--eleven-fold over the The
present retirement system provides nondisability AWL LILW3G ULL ab
L AVG uu~y WLLW a U~LGLALLAAAGU c.v WG UAAAAC Y~UUUYU of
physical.disability. At the present time, there is no vesting of
retirement benefits for those who do not otherwise meet the
requirements for a retirement annuity, butthere is a system of
tarily disch a rged prior to retirement eligibility providing
separation pay for commissioned members who are involun- I
Eligibility for nondisability retirement, subject to agree- ment by
the Secretary of the military department concerned occurs only
after 20 years of s ervice. Payment is determined on 2.5 percent of
basic pay for each year of service up to a maximum of 75 percent of
basic pay for 30 or more years of service. This depends on the
member's final basic pay, or for those entering after September
1980, the av e rage of the high three years. An Army Sergeant First
Class (E-7) who retired at 20 years would draw about $770 per
month. A Sergeant Major (E-9) at 30 years would receive over
$1,700; a Lieutenant Colonel (0-5), after 20 years, would receive
about $1,650; a Colonel (0-6) after 30 years, just over $3,100.
while provision is made for inflation adjustment, full adjustment
has been delayed since 1982 by con gressional action. Social
Security benefits derived from member contribution are added to
military retir e d pay in efforts to reduce overall costs. Most of
the cost reduction schemes relate to one or more of the following
for early (20-year) retirement; reduce adjustments for cost-of
living allowances (COLA establish a contributory system in which
the service member provides some percentage of input; or integrate
Social Security benefits in some manner Military retired
compensation has come under repeated attack reduce annuities 7 The
critics who believe that military retired pay is simply too
generous need to reexamine their premises--and the facts.
While 20-year retirement provides 50 percent of basic pay, basic
pay is only about two-thirds of basic military compensation
BMC)--the approximate equivalent of civilian compensation. The
annuity, therefore, after 20 years service is now only about 35
percent of basic military cornpensation. Today, almost two-thirds
of all active duty enlisted retirees with a family unit of four the
norm) would be below the poverty level without additional
employment. Over three-qu a rters would qualify for some welfare
including food stamps. Studies show that lucrative jobs after
retirement are more the exception than the rule. A 1983 study by
the accounting and' consulting firm of Coopers Lybrand for the
Defense Department showed th a t retiring enlisted men earn sub
stantially less than their civilian peers. While certain tech-
nical skills are directly transferable to the private sector many
military skills are not. Most retirees find that they must go
through a complete career trans i tion transition they are behind.
Enlisted men's income was still more than $6,000 below their peers
after seven years in the civilian workforce. Officers who retired
after 20 years started out more than $10,000 behind and were still
nearly $2,000 behind a t the end of the same seven years active
duty, the longer it took to catch up.
The major criticism of retirement is aimed at the authority to draw
a retirement annuity after 20 years active service. It is
criticized both for being too genekous (in terms of total
lifestream cost).and for providing a disincentive for members to
stay beyond the 20th year the annuity for retirement short of 30
years. Some also propose cutting the cost of living allowance (COLA
a formula that in the recent years of high inflati on has driven up
These proposals mean significant reductions in the service person's
total lifestream income. One proposal would reduce the COLA
increases by half. while this appears to be only a reduc tion of a
few dollars a month, it wo uld reduce the expected lifetime
retirement income of a Navy Chief Petty Officer (E-7 retiring at 20
years--by 36 percent when inflation is assumed to be a constant 5
percent per year be even more devastating of lifetime income would
be about 24 percent.
The Reagan Administration, in fact, has a better idea for
restraining COLA growth: reducing inflation. Today's lower
inflation rates already have reduced dramatically COLA costs. It is
inflation and the size of the force that have driven retirement
costs u p--not increased benefits. Many of today's critics were
only recently, champions of the very programs and policies that
brought this inflation in their wake e And even after the Moreover,
the longer they stayed on A number of proposals aim at reducing Hig
h er inflation rates would Even with 30 years of service the loss
PERCEPTIONS AND MISPERCEPTIONS Some of the attacks on the military
compensation system sprina from misunderstandinczs and
misperceptions. 8 0 Commissaries and military exchange stores--the
PX s , for example--are almost constantly under attack essential ae
many posts, and lfstretchlf military and retired pay everywhere
,dar more than they cost compensating those who use them would have
the effect of cutting military pay value, low cost geted by t he
cost conscious were unique; they have roots in necessity at
isolated military posts are as generous and often more generous
than those available to service families. Dental care, for example,
is routinely provided in company medical plans but unavailab le to
most military dependents.
Some believe that there is current pay comparability with the
civilian sector. This is becoming increasingly the exception as the
economy improves last to improve, but there is strong evidence
already that, as it does, the w ages paid the military will not be
competitive tion alone will not prompt a prudent person to seek a
career in an organization that terminates many in their forties and
even the most successful shortly after reaching age fifty.
Retirement pay partially co mpensates for opportunities--in income,
stability and investment-forgone by those who choose a life of
U Retired pay is overly generous, argue others Yet it has been
driven up by inflation, not largesse, and would still place many
below t he poverty level. It provides few with more than is needed
to purchase the house their civilian counterparts bought years
before and have already paid off 0 Twenty-year retirement is a
particular target. Yet many service persons are involuntarily
terminat e d short of 30 years service will be forced to retire
before they reach 30 years service. The fact is that retirement at
20 years is not as attractive as it is sometimes made to seem.
Contrary to popular wisdom, the earlier the retirement, the less
the tot al lifetime retired pay will be.
The advantages to staying on are increased dramatically if even one
promotion in the last ten years is assumed unique condition of
military service or understanding of the role played by
compensation in the management of th e Armed Forces Yet they are
Abolishing these without They are, in fact, a bargain for the
taxpayer--high 0 Dependent medical care is another benefit
frequently tar There was a time when such benefits Today, however,
medical plans offered by most industrie s 0 Teenage unemployment is
typically the 0 Some assert that retired pay is unaffordable. Yet
dedica More than half the officers reaching 20 years service These
perceptions demonstrate a lack of appreciation of the CONCLUSION
Military members and their fam i lies know that their jobs are
different from those of the average job holder. tive to this
relationship of commitment and good faith personnel have developed
a set of values that center on a willing ness to subordinate self
and accept the risks and burden s of service They are sensi- Career
They feel that they deserve some guarantees in return I' 9 family
support, care, and protection; stability in compensation support,
and benefits; institutional support (commissaries exchanges, morale
and recreational ben e fits, and medical care and the retirement
benefits they were promised and that they fully and properly earned
of a continual erosion of benefits. The perception, unfortunately
is ubiquitous their circulation around reports on two annual
campaigns headlini n g the attacks' on benefits; and second,
recounting the threats to the next, inflation prompted, pay hike.
Unfortunately these campaigns are based more on fact than fiction
need a new and comprehensive perspective for understanding and
assessing this compl e x area compensation system is to manage the
force and support the needs of national security. Human resources
are the most important, and the most expensive, part of the
nation's investment in defense and the compensation system has a
profound long-term i mpact on providing an adequate number of
people with proper skills and leadership ability to meet defense
needs and ensure the desired composition and configuration of the
Military compensation is not and never will be a mirror image of
that in the civilian sector. The structure, objectives and
conditions of service are extremely different contract and the
unique risks and conditions of service mean that the service person
is different than the purely economic-man model. Career members
need and expe c t a special kind of institu tional support not
common in a civilian work environment. is why the compensation
philosophy must be more than an economic wage for services
rendered. The benefits and privileges are especially important, and
the retirement sys tem and survivor benefits are vital ingredients.
They have immediate and lasting impacts on military force
readiness--and U.S. security.
Prepared for The Heritage Foundation by Lt. Gen. Richard L. West
(U.S. Army-Ret Senior Associate Associati,on of the U. S. Army
Nothing is more corrosive to good morale than the perception first
Service oriented publications typically build Those who must work
with the issues of military compensation The underlying purpose of
the I The unilateral That Defense Assessment Pr oject Studies No 1.
Theodore J. Crackel, "Reforming 'Military Reform Heritage Back No.
2 grounder No. 313, December 12, 1983.
Robert K. Griffith, "Keeping the All-Volunteer Force Healthy,"
Heritage Backgrounder 'No. 353, May 18, 19
84. J. A. Stockfisch, "Removing the Pentagon's Perverse Budget
Incentives No. 3.
Heritage Backgrounder No. 360, June 19, 1984 No. 370, August 1,
No 4. Mackubin Thomas Owens, "The Utility of Force," Heritage
Backgrounder 10 KEY REFERENCES Department of Defense, Fifth
Quadrennial Review of Military Compensation January 1984
Congressional Budget Office, Modifying Military Retirement:
Alternative Appr oaches, April 1984.
Report of the President's Commission on Military Compensation,
Department of Defense, Military Compensation Background Papers,
Second Edition, July 1982.
Statement of Dr. Lawrence J. Korb, Assistant Secretary of Defense,
b efore a combined session of two Senate subcommittees, "Comparison
Studies are Inadequate," reprinted in Sergeants, Air Force
Sergeants Association February 1984 Thomas M. Hale, Captain U.S.
Navy, "Military Retirement Pay A Time of Crisis,"
U.S. Naval Institute Proceedings, April 1983.
Tom Philpott Research of Pentagon Pay Study Panel Proving Two
Retirement Beliefs False Navy Times, March 21, 1983.
Peter K. Ogloblin, Office of the Deputy Assistant Secretary of
Defense for Military' Personnel and Force Man agement, Principles
of Military Compensation unpublished paper), February 16, 1983
Associates of Military Leadership, Department of Behavior Sciences
and Leader ship, United State Military Academy, Military Retirement
and Dissatisfaction Is This a Calling or a Job?, n.d.
Thomas M. Hale, Captain USN (Ret Reserve Retirment: A Bumpy Road
National Guard, April 1984.
Richard V. L. Cooper et al Military Retirees, Separatees, and
Post-Service Earnings," Coopers Lybrand, January 1984.