While military members will continue to get paid through the current government shutdown, questions about the affordability of military compensation over the long term are gaining greater attention. There is a growing recognition that the long-term fiscal health of the Defense Department requires finding common ground on overall budget levels. This will not, however, be enough. More must be done to slow the rates of internal cost growth, which are eating away at the Pentagon’s purchasing power.
One of the most serious areas of concern is the cost of military personnel. Since 2001, military personnel costs have risen at rates that outstrip inflation by 30 percent. The two main components of servicemembers’ compensation package — military health care and pay and allowances — now account for about one-third of DoD’s budget. Long considered a third rail, the need to address military compensation as part of a broader effort to put the defense budget on sound footing is finally being more broadly acknowledged.
Congress started to recognize this challenge last year when it created the Military Compensation and Retirement Modernization Commission (MCRMC). More recently, Rep. Rob Wittman, R-Va., chair of the House Readiness Subcommittee, acknowledged that more discussion is necessary going forward. This is important, as his support will be critical to implementing any recommendations that might emerge from the MCRMC’s work, potentially sometime next year. But in the interim, the challenges may get worse as DoD seeks to meet short-term budget targets by cutting benefits and shaving pays where it perceives the least risk.
The problem with these cuts is that they are largely based on subjective judgments rather than actual data. As the compensation conversation evolves, it’s imperative to keep in mind the vast variability in needs and values represented by the nearly 2.2 million members of the military and their families. The approach to modifying military compensation that has the best possibility for fully supporting all servicemembers is one that is based on choice, choice that would allow compensation packages to be tailored so that they align with what matters most to those who choose to serve while also costing less.
Military compensation is often cited as a primary driver for recruitment and retention. Regular military compensation (RMC) includes basic pay, but also housing and food allowances, along with the tax advantages associated with these benefits. In addition to RMC, servicemembers receive additional bonuses or incentive pays, as well as in-kind benefits such as subsidized childcare, education, and health care. Finally, in addition to social security that is paid for all who serve, those who reach at least 20 years of service earn significant retirement pensions.
Almost all elements of the total military compensation package have become more costly over the last decade, for a variety of reasons. Some relate to modifications driven by the desire to account for stresses and sacrifices because of the wars in Iraq and Afghanistan. Others were caused by market, demographic, or policy shifts. One example is the switch to privatized military housing in the 1990s, which increased the cost of housing per servicemember by almost 60 percent between 2000 and 2012. Another is the growth in the costs of food subsidies, in part due to providing meals to deployed forces, and in part because of higher food prices overall.
Going forward, some compensation costs are expected to fall, such as fewer incentive pays for exceedingly dangerous assignments as troops leave Afghanistan. But there are other areas where cost growth remains a serious issue. Recent changes in recruitment demographic goals will affect utilization of other benefits, such as family care. Retirement costs, which have grown 21 percent since 2000, are rising because of demographic changes and shifting career patterns. And in 2012, the Congressional Budget Office estimated that DoD’s health care costs will continue to rise more than four percent annually in real terms over the next decade. As the FY14 Budget Request Overview book notes, “If we do not slow the growth in military compensation, the DoD will have to make additional force structure reductions… or make further cuts to funds for training and equipping our forces,” which directly undermines both current and future readiness.
These numbers seem to cry out for change. But there are legitimate concerns that have impeded reform. Primary among them is the need to keep faith with those who serve; they entered into a pact with their nation that must be honored. Further, military compensation is designed in part to recognize the unique sacrifices of servicemembers and their families, up to and including the loss of life.
The challenge comes, therefore, in balancing those obligations, along with the need to retain and continue to recruit a high quality force, with the fiscal realities. That challenge is compounded by the need to ensure that any shift is consistent with two core tenets of military culture: equity and fidelity. Treating people differently (i.e., not equitably) can undermine cohesion. And trust (fidelity), to include keeping commitments, is the foundation upon which all military action is predicated.
There is one way to achieve this balance that has yet to be meaningfully explored. Some of the cost in the current system is driven by inefficiency. The homogeneity in the compensation system means we may pay servicemembers, directly or through in-kind benefits, for things they do not really value, and fail to provide them with things that may be more meaningful to them than money. Intuitively, it is obvious that people’s preferences for different combinations of pay and benefits change over time as people get older, get married, have kids, get divorced, or take care of aging parents. But the current system has no knowledge of how those preferences evolve, let alone the flexibility to actually align with those changes. Further, it is not just whether servicemembers care about benefits like access to gyms or the opportunity to shop at a subsidized on-base grocery store (known as a commissary), but how much they value them.
Because defense leaders lack this information, they make take short-term decisions to cut back gym hours, for example, or eliminate commissaries. Alternatively, they may pay for a cash bonus when something that matters more to a servicemember, like another year in a location so that a child can finish high school, would be “worth” much more. And convenient and affordable childcare may be so important to some who serve that its elimination may mean they are forced to separate. (This may be particularly true for women, whose participation in the force we are trying to increase.) And the opportunity to shop at a grocery store on a military installation as part of a community may provide more incentive for retention than would the costs of paying for the stores, at least for some.
While some research has begun to investigate things like the perceived relative value of compensation benefits, not enough analysis has been done to account for differences within those data. Knowing these three things—the “who,” “what,” and “how much”— servicemembers and their family members value certain elements of compensation would prove invaluable as policymakers take steps to “save money” in compensation while attempting to avoid unintended effects elsewhere. Defense Secretary Chuck Hagel should direct the collection of data on servicemember preferences immediately, data that could be used to inform the painful decisions ahead.
We are at a point where the trends in the costs of military compensation threaten the ability to train and equip those who volunteer to serve, another version of a violation of the pact between the country and its military. There are two paths forward. We can take steps that are incremental but leave the basic foundations of the current system in place, such as slowing the rate of annual raises or cutting funding for certain non-cash “extras.” Or we could seize the opportunity to truly reform the compensation system to one that, while costing the U.S. government less, actually provides servicemembers with things that they value most, which every indication suggests is a combination of money but also other things. If we take this path, the choice between efficiency and fairly compensating those who serve will be a false one, as it truly should be.
Dr. Maren Leed is Senior Advisor, Harold Brown Chair in Defense Policy Studies at the Center for Strategic and International Studies. Ariel Robinson is a CSIS research assistant.