January 27, 2015

CNAS Release: "Military Compensation and Retirement Modernization: A Primer"


Washington, January 27- In advance of the release later this week from the Military Compensation and Retirement Modernization Commission, the Center for a New American Security Military, Veterans, and Society Program has released a new report, Military Compensation and Retirement Modernization: A Primer. The report examines the growth of military compensation in the post-Cold War era, from 1990 to 2015, as well as the social contract America has with its All-Volunteer Force (AVF), and the ways in which monetary compensation should be considered as part of a broader talent management strategy for the armed forces.

The full report is available here: http://www.cnas.org/military-compensation-and-retirement-modernization

Military compensation stands at an inflection point. The combination of intense fiscal pressure, an uncertain global security environment, continued deployments demanding continued military readiness, and other factors, place a premium on getting military compensation right. CNAS researchers Phillip Carter and Katherine Kidder examine the current state of military personnel outlays within the DOD budget, using time-series data to visualize the trends over the past 25 years of war and peace, including service-level and individual-level data.  Their findings include:

  • Base pay steadily increased from 1990 to 2001, keeping in pace with inflation, and then increased more quickly from 2001 to 2014.  The military effectively closed the gap between military and civilian compensation during the 1990s, and then added an additional premium to military compensation during the last 14 years of war.
  • This premium was arguably the cost of sustaining the AVF in wartime, but it significantly added to current spending levels, and to future spending levels, because base pay increases result in retirement pay increases which DoD will shoulder for the lifetime of retirees from this cohort.
  • End strength and military personnel spending had a near-perfect correlation from 1990 to 2000; that correlation went away in 2001, with military compensation spending losing its direct relationship to the number of active and reserve personnel.
  • Defense personnel spending in 2015 is roughly equal to defense personnel spending in 1990, in constant dollars, even though there are roughly 759,000 fewer active and reserve service members than 25 years ago. DoD now spends nearly three times as much per service member on compensation.
  • The DoD retiree population now exceeds the size of the active military and will soon exceed the size of the active and reserve force. If current cost trends continue, and considering both retirement pay and retirement health benefits, DOD will soon pay more to support its retired military population than its current force.
  • Monetary compensation matters for practical and moral reasons, and is an essential component of sustaining the AVF.  Reforms may be necessary for fiscal reasons, but those reforms must be considered as part of a broader talent management strategy.
  • The military should consider the continued viability of its "one size fits all" compensation model, and whether it can better support service members and their families with a "defined contribution" retirement model instead of the current "defined benefit" model.
Overall, the Military Compensation and Retirement Modernization Commission report presents an opportunity for the nation to assess its social contract with the All-Volunteer Force and adjust (if necessary) to meet the national interest and sustain its most critical national security asset.