Compensation reform committee, very wary of cutting military compensation

For years, the Pentagon’s top brass has called for an overhaul of the entire military compensation system, claiming that the cost of troops’ pay and benefits is soaring unsustainably and threatening future funding for readiness and weapons modernization.

But a highly influential panel of experts appears to be unconvinced.

The Military Compensation and Retirement Modernization Commission, created last year by Congress to tackle politically volatile questions about troops’ future pay and benefits, issued an interim report July 3 that showed skepticism about whether overall personnel costs need to be cut dramatically.

The 358-page report offered the clearest window yet on the commission’s work that will conclude next February when it submits a slate of recommendations to Congress. That could potentially jump-start efforts on Capitol Hill to restructure a military pay system that has remained largely unchanged since the 1970s.

But the report noted that while military personnel costs have grown, so has the overall Pentagon budget. And the percentage of money spent directly on pay and benefits has remained steady as a percentage of the total Pentagon budget — about one-third — since the 1990s.

“These simple trends need to be examined in greater detail before any conclusions can be drawn regarding fiscal sustainability,” the report said.

The commission said it’s important to compare military personnel costs to other financial indicators. Since 1998, personnel costs are outpacing growth in civilian wages as measured by the Labor Department’s Employment Cost Index. However, those same military personnel costs are not rising much more than the the total size of the economy as measured by the gross domestic product.

Moreover, the report noted that current pay and benefits have kept recruiting and retention strong despite the strain of constant wartime deployments since 2001.

“The current compensation system has sustained the All-Volunteer Force through 13 years of continual war,” the report said. “The question facing this Commission ... is not ‘Can the compensation system be made to work?’ but ‘Can it be made to work better?’ ”

The commission signaled an interest in giving troops more choice in their compensation package. The report noted that the private-sector job market has moved toward “cafeteria-style benefits,” allowing workers to choose from a menu of options and also opt into 401(k) retirement plans that workers keep when changing jobs.

“Many employers are finding it advantageous to allow employees to tailor their working conditions, hours of work, place of work, and benefits to suit their individual needs,” the report said. “These trends toward greater flexibility and choice in the broader society have implications for the cost-effective design of the military compensation system.”

The commission signaled an interest in targeting women by noting that data suggest “trained and qualified female service members leave military service earlier than they otherwise might due to a lack of flexible career options. As such, increased flexibility for female service members may improve both retention and cost effectiveness, particularly in skill sets with high training costs.”

For the reserve component troops, the commission’s report noted the surge in mobilizations since 2001 and said reserve compensation deserves special attention due to the likelihood that operational requirements for the reserve components will “continue to grow as the active-duty force gets smaller.”

The commission signaled a reluctance to scale back family services by noting that today’s military is more family-oriented than it was at the dawn of the all-volunteer force 40 years ago, with the percentage of married troops growing from 40 percent in 1973 to about 55 percent today.

“These trends have substantial implications for compensation programs that support spouses and dependents, especially quality-of-life and family support programs that provide support during frequent deployments of service members,” the report said.

The commission also expressed some concerns about the prospects for future midcareer retention.

Today’s military is far more educated, largely due to the technical skills and taxpayer-funded educations that service members receive. This “may serve to increase the cost and difficulty of competing for, and retaining, employees with advanced or specialized knowledge and skill sets,” the report said.

The report pointed to numerous reasons why personnel cost will not continue to grow at the same rate as the past 13 years. “Much of this growth is attributed to inflation (particularly medical inflation), policy-driven increases in compensation to counteract recruiting and retention challenges, and personnel funding that supported 13 years of war,” the report said.

The report also noted that the rise in personnel costs in recent years has been driven in part by the addition of new benefits rather than by the natural growth of regular compensation programs. For example:

■ In 2001, Congress created the Tricare for Life benefit that provides extends access to the military health system to retirees over age 65.

■ The costs to fund the Basic Allowance for Housing have grown because in 2005, BAH covered only about 85 percent of average off-base housing costs; Congress voted to increase that to a current level of 100 percent over several years.

■ In 2004, some disabled veterans became eligible to receive benefits from both Defense and Veterans Affairs departments under a policy known as concurrent receipt.