August 27, 2012
Dial Back Pay Raises, Report Says
By Rick Maze
The time is right to scrimp on military pay raises, says a new report that appears to agree with a Pentagon proposal to cap basic pay hikes starting in 2015. The report, commissioned by the Defense Department, was conducted by the Rand Corp., a think tank that has done considerable research for the military on ways to hold down personnel costs.
The report offers three reasons to justify military raises that are smaller than annual private-sector wage growth:
*A tight civilian job market has improved military recruiting and also has made midcareer troops less likely to leave.
*The end of combat operations in Iraq and the winding down of the mission in Afghanistan will dampen the political fallout of smaller raises.
*Service members are well-compensated after a decade of robust increases in pay and benefits. Since 2000, basic pay has risen by 45 percent, compared with increases of 33 percent in privatesector wages and 31 percent in the cost of consumer goods and services.
When tax-free housing and food allowances are factored in, the report says, enlisted members are better paid than 80 percent or more of civilians, compared with less than 60 percent in 2000.
“Military pay buys a lot more than it used to,” the report says. “Overall, conditions are currently favorable for DoD to… slow the growth in military pay, enabling savings in military personnel costs while achieving force management goals.”
This is hardly the first report to attack military pay and benefits — but this one supports an active Defense Department initiative.
The five-year defense budget plan unveiled by the Pentagon in January proposes 2013 and 2014 raises that would continue to match average annual increases in private-sector wage growth. The request for 2013 is 1.7 percent; the size of the 2014 raise will depend on private-sector wage growth next year.
The nonpartisan Congressional Budget Office estimates that growth will be 3.3 percent, but the actual amount won’t be known until fall.
However, defense officials have said that beginning in 2015, they would begin proposing smaller pay raises that presumably would be less than the average annual increase in private-sector wages.
Defense officials have never laid out in public testimony the details of their proposed raises for 2015 and beyond.
Documents released by DoD in February in conjunction with the fiscal 2013 budget proposal said only that raises beyond fiscal 2014 “will be lower.” The documents also said the lower raises are being delayed for two years to give troops time “to accommodate these changes.”
In February testimony on the defense plan, a senior Pentagon personnel official, JoAnn Rooney, told the House Armed Services Committee that “slowing future growth of military compensation” was a key part of DoD’s effort to cope with postwar force cuts and tighter budgets.
Defense officials “understand [that] current fiscal pressures demand change and that the costs of military compensation are significant,” Rooney said. “Some cost savings will be achieved through proposing more limited pay raises.”
Congress has not yet reacted to the Pentagon pay study because lawmakers do not need to directly address something that will not happen for at least two years, according to congressional aides who work on personnel issues. However, the CBO is skeptical that lawmakers would approve the capping of military pay.
The Rand report lays out three options for capping military pay raises, and how much money each would save:
*A one-time pay freeze that would save about $1.2 billion the first year and $17.7 billion over 10 years.
*A one-time pay cap that would hold the military raise to half a percentage point less than average private-sector wage growth, which would save $360 million in the first year and $5.2 billion over 10 years.
*Four years of military raises capped at half a percentage point less than private-sector raises, which would save $360 million the first year and $17.5 billion over 10 years.
The report does not specifically recommend any of the options but notes that a four-year pay-raise cap could be hard to maintain because recruiting and retention might worsen, the economy might improve, or new strains on the force could emerge. Any of these factors could erode support for maintaining limits on military raises, the report says.
While the report emphasizes how military raises have well outpaced private-sector wage growth since 2000, it never points out that military pay was far behind civilian pay at that point.
From 2000 to 2011, Congress approved annual military pay raises that outpaced private-sector wage growth precisely because military pay had badly lagged in the 1990s — a big factor in a recruiting and retention crisis that took hold after the post-Cold War drawdown that decade.
In fact, 1998 and 1999 saw the peak of the so-called “pay gap,” a comparative measure of annual military and private-sector pay growth since 1982, the last time rough parity was thought to exist. With the pay gap at 13.5 percent and troops voting with their feet, Congress embarked on its 11-year campaign to make military pay competitive again.
A lesson not learned?
The considerable effort required to make that happen over more than a decade will be for naught if military pay is again allowed to lag behind civilian wages, advocates say.
“It seems like this is a lesson we never learn,” said retired Col. Steve Strobridge, government relations director for the Military Officers Association of America and a former compensation director for the Air Force.
“What will happen, most likely, is what has happened in the past,” he said. “We will cap people and short their pay… and keep doing it until the pain starts to show with reduced recruiting and reduced retention, and then you reverse course.
“We turn the tap on, we turn the tap off, and in the process leave a military compensation system that lacks basic principles, like paying people a fair wage,” he said. “What message are you trying to send when you say to people in the military that they don’t deserve the same pay as the average American?”
“Capping basic pay is about the worst thing the military could do,” said Todd Harrison, a defense analyst with the nonpartisan Center for Strategic and Budgetary Assessments.
“Basic pay is one of the most cost-effective forms of military compensation. DoD should reduce other, less valued forms of compensation before [it considers] touching basic pay,” said Harrison, who in July released a study based on surveys of current and former service members about what trade-offs they would make in their pay and benefits.
A long-term struggle
Since the dawn of the all-volunteer force after the Vietnam War, the Pentagon has struggled with how to set military pay rates. Defense officials want to spend enough to be competitive with the private sector and fair to the troops while being prudent stewards of taxpayer dollars.
The general view has been that military pay should be “comparable” to what service members would earn if they were not in uniform, according to the Military Compensation Background Papers, a DoD history of pay and benefits.
In the early 1970s, military pay was kept roughly equal to the pay of federal civilian workers with similar years of service, but that didn’t work well because federal pay was not keeping pace with private-sector salaries.
By 1981, military wages were considered to be far behind what service members could earn in the private sector, leading to two huge catch-up raises: 11.7 percent in fiscal 1981 in the last Carter administration budget and 14.3 percent in fiscal 1982 in the first Reagan administration budget.
But military pay quickly began to lag behind the private sector again, leading to the peak 13.5 percent pay gap in 1999.
The next year saw Congress approve a new pay formula that required annual military raises to be half a percentage point above average private-sector wage growth as measured by the Labor Department’s Employment Cost Index, or ECI.
Initially imposed for just five years — over DoD objections — the “ECI-plus-½” formula was used by Congress for 11 years, cutting the pay gap to 2.4 percent by 2010, where it remains.
However, DoD strongly argues that any pay gap disappeared long ago if military housing and food allowances are factored in.
Those allowances, which with basic pay form what DoD calls “Regular Military Compensation,” saw major increases over the past decade as a result of changes in the way they are calculated and paid.
In fact, the 2008 Quadrennial Review of Military Compensation argued that, using the RMC yardstick, service members were paid better than their civilian counterparts. The QRMC said cash compensation for enlisted members was, on average, $5,400 more than for comparable civilians. Officers did even better, with average cash compensation $6,000 more than civilians with similar experience and education.
Lawrence Korb of the Center for American Progress, the Pentagon’s top personnel official from 1981 to 1985, said he agrees with the Rand report’s conclusion that military raises have been overly generous in recent years, but he said he is not sure a long-term cap on military raises is the answer.
Korb said he supports keeping military raises at the same level as annual private-sector wage growth.
“We got ourselves in a lot of trouble in the ’70s, when we capped raises,” he said. “We do not need to do that again.”
August 27, 2012
Now Is Not The Time To Rein In Pay Raises
The Rand Corp., the Pentagon’s go-to think tank, has issued a new report that discusses options for scaling down the size of future military pay raises.
The report neatly supports the stated desire of senior defense officials to begin taking steps to rein in their spiraling military personnel costs.
A centerpiece of that plan envisions smaller military pay raises starting in 2015. Rand lays out three options: a one-year pay freeze; a one-year raise at half a percentage point below privatesector wage growth; and four successive years of such raises.
The report offers several justifications for military raises that are smaller than average privatesector wage growth:
*Troops are well-compensated after a decade of robust increases in pay and benefits.
*A tight civilian job market has made military recruiting and retention quite strong.
*The end of the wars in Iraq and Afghanistan will dampen the political fallout of smaller raises.
Each point can be readily refuted.
It’s true, as the report notes, that military basic pay since 2000 has risen by 45 percent, compared with 33 percent for private-sector pay.
But Rand ignores how far from behind military pay had to travel to get to where it is today.
Above-average pay hikes from 2000 to 2010 were approved by Congress as a specific response to the aftermath of the post-Cold War drawdown of the early 1990s, when military pay was allowed to fall well behind average private-sector wages.
By 1999, the “pay gap” stood at 13.5 percent — a disparity that helped ignite, and fuel, a major recruiting and retention crisis.
That leads to the report’s second point: that the military can afford to pay troops less because the struggling civilian job market is keeping recruiting and retention strong.
It’s easy to imagine defense officials thinking similar thoughts in the 1990s — until troops began leaving in droves toward the end of the decade because they were fed up with the eroding value of their compensation.
It’s unrealistic to expect the current job market to remain flat; in fact, the jobless rate for young veterans, a focus of intense concern in recent years, has fallen steadily for several months.
The Pentagon would ignore a painful lesson of recent history if it allowed military pay to again begin to lag private-sector wages. It’s much easier — and less costly — to maintain strong recruiting and retention than to let it fall apart and have to rebuild it.
The report’s final point, that the end of the Iraq and Afghanistan conflicts will dampen the political fallout of approving smaller raises, whistles past the question of whether doing the politically expedient thing is the same as doing the right thing.
In truth, military pay hikes have already been scaled back in recent years.
In contrast to the above-average raises of the century’s first decade, the pay raises in 2011 and this year have merely kept pace with private-sector wage growth, a trend expected to continue in 2013 and 2014.
Neither Rand nor the Pentagon has made a valid case for retreating on military pay.
The nation asks much of its troops and their families; even with the looming end of more than 10 years of combat deployments, military service remains a calling like no other.
Today’s all-volunteer, highly professional military deserves pay raises that at least match those of the private sector.