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Revamped bonuses eyed for best performers

The Pentagon should overhaul its pay system to attract and reward the best performers and broaden bonuses for those in critical skills, a far-reaching review of military pay released Wednesday concludes.

The changes would help address the need to recruit the “best and the brightest” despite wartime demands on the force, a shrinking pool of military-eligible recruits and competition from the private sector.

The 10th Quadrennial Review of Military Compensation said these convergent factors demand that the military be given more pay flexibility — what the report’s authors call “competitive compensation.”

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The 10th Quadrennial Review of Military Compensation (5.6 MB PDF)

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A briefing on the report from the Office of the Secretary of Defense (Microsoft PowerPoint presentation)

Under the Pentagon-sponsored review, a comprehensive, every-four-years study mandated by federal law since 1965, the services could award enlisted troops and officers promoted early an additional year of service solely for basic pay purposes that would boost their pay above that of their peers and keep it there as they move through their military careers — a permanent award for their fast-track accomplishment.

Re-enlistment bonuses could be sized based upon a member’s performance during the current enlistment period, the report suggests. And commanders might be given a limited pool of bonus money that they could dole out to outstanding performers, such as a “sailor of the year” — or, say, a top recruiting unit.

The 10th QRMC also suggests giving the services broad authority to award “credential pay” to troops who become certified in critical skills.

The report also said the budget for special and incentive pays should be increased relative to basic pay to give the services “greater flexibility in responding to changing mission needs ... offering greater opportunity to use special pays and bonuses to shape the force.”

These are some of the far-reaching conclusions of the 10th QRMC’s first report, which focuses on cash compensation. A second report due in late summer will contain recommendations on non-cash and deferred benefits, such as retirement pay.

The group’s conclusions are only proposals, and have no effect unless enacted into law.

Past QRMCs have produced significant changes in pay, although the changes typically occur slowly. As a result of the early work of the 9th QRMC, the Pentagon launched a five-year series of targeted pay raises that boosted pay for mid-grade enlisted members and warrant officers. A recommendation from the new panel’s work — to consolidate more than 60 special and incentive pays into eight broad categories — also was adopted early and signed into law in January.

“The two big things for us were flexibility for the service, and being able to do good things for service members,” said retired Air Force Brig. Gen. Denny Eakle, QRMC executive director and former deputy director of the Defense Finance and Accounting Service.

The goal, she said, was to give service members “the greatest amount of choice we possibly can, within the limits of response to what the department needs.”

“The compensation system should be able to respond quickly to changing force needs, operational demands, or problems in specific occupational areas,” according to the report. “To accomplish this, force managers need the flexibility to adjust resources to reflect emerging issues or shifting priorities. They also need to be able to make targeted adjustments to specific problem areas.”

The Pentagon also needs a greater ability to attract and keep top performers that the QRMC said “often have many opportunities for employment, with high-quality service members lured by potentially more lucrative private sector opportunities.”

And while the demands of the wars in Iraq and Afghanistan limit the degree of control many troops have in terms of their assignments, the QRMC said choice isn’t always incompatible with operational requirements and that proper compensation policy can steer the right people to the right jobs.

For instance, the report notes that the Navy has used a program since 2003 that allows personnel to bid on the amount of additional pay they would accept to take certain hard-to-fill jobs.

In addition to the pay-for-performance proposals, the QRMC also suggests bringing Basic Allowance for Housing rates for single service members to 95 percent of the rates paid to troops in the same paygrade with families. Currently, without-dependents BAH rates average around 80 percent to 82 percent of the with-dependents rates, so this proposal could mean several hundred dollars more a month for single members.

The QRMC said the Pentagon should also overhaul partial BAH, a payment to single troops in government quarters that is supposed to reflect the difference in the in-kind value of their base housing and what their BAH would be if they lived off-base.

Partial BAH rates have not changed since 1977, and the value of that payment has eroded significantly. The QRMC suggests a new additional partial BAH payment aimed at the roughly 65,000 single junior enlisted members living in housing that is below the Defense Department’s stated standard — the so-called “1+1” model, where each service member has his or her own bedroom and shares a kitchen and bath with one other member.

Those still living in undesirable conditions — aboard ships or in multi-person barracks rooms — would receive an additional partial BAH payment equal to 5 percent to 25 percent of the without-dependents BAH rate for their location.

The QRMC also suggested a new way to compare military and civilian pay — and a means to better educate the force about the true value of their overall compensation.

The military’s longstanding measure for pay comparability has been “Regular Military Compensation” — the sum of basic pay, housing and food allowances, and the federal tax advantage of those untaxed allowances.

The QRMC suggests a new measure called “Military Annual Compensation” that would include those factors, plus the state and FICA tax advantages of untaxed allowances, the value of avoided out-of-pocket heath costs and a measure of the differences between the value of military and civilian retirement.

The idea, the QRMC said, is to give troops a better feel for how their total compensation package actually measures up against the private sector, allowing them to make more informed choices about their service.

The concept of competitive cash compensation is not a new one; it was earlier broached in the April 2006 final report of the Defense Advisory Committee on Military Compensation, which the 10th QRMC used as a jump-off point for its work.

The DACMC recommended that the military replace its current time-in-service pay table with a time-in-grade table in order to better encourage and reward performance and motivate others to strive for excellence.

But while the QRMC said paying troops based on how long they have been in a given paygrade would yield a permanent advantage in pay, it cited past reviews that found promotion speed is not always based on performance, and also varies from service to service.

Promotions generally come faster in some occupations and slower in others — and sometimes are driven simply by supply and demand.

The report also notes that without a significant budget increase, a time-in-grade pay table would reward the best performers at the expense of others. Based on the QRMC’s own calculations, 25.2 percent of enlisted personnel would get a raise, but 22.8 would get a reduction. Among officers, 20.6 percent would see pay increase, but 28.5 percent would see less.

A quick fix that would prevent such losses would cost about $1.1 billion in the first year alone, the QRMC said. And such a change would require a radical overhaul of the pay system, yet would benefit relatively few.

Instead, the QRMC recommended keeping the time-in-service pay table and limiting rewards to the relatively small portion of the force that is promoted early.

For instance, an E-6 with 14 years of experience who was promoted a year early to E-7 might be paid at the 14-year level in his first year in that grade, but his service might have the flexibility to bump him the next year into the 16-year pay cell, permanently moving him one year ahead of his peers.

This would only be used to calculate basic pay; it would not count toward years of service needed to qualify for military retirement.

Use of such “constructive credit” would also allow the Pentagon to address the problem of properly compensating “lateral entrants” — mostly medical professionals who come in as officers.

Such people are now brought in at a rank commensurate with their private-sector experience. A doctor with eight years of experience typically is made an O-6. But O-6s often command troops — something in which a doctor likely has no experience.

A better plan, the QRMC said, would be to bring in the doctor at a lower rank but at an advanced time-in-service pay cell that adequately recognizes their experience.

The idea would also apply to “prior service” personnel — those who leave the military and later decide to return, the QRMC said.

The proposals, however, raise an obvious question: Where will the Pentagon get the money, if not from those promoted at normal or slower rates?

Just ask for it, the QRMC suggests, arguing that the cost would not be prohibitive because a relatively small slice of the force would be affected.

Only about 600 officers a year are promoted early, the QRMC said. The Pentagon said it does not track early promotions for enlisted members because the process is not linked to year-groups.

“Our intent is not in the least to hold down future pay raises,” Eakle stressed.

Basic pay, she noted, is required by law to at least match the Employment Cost Index, a Labor Department measure of private-sector wage growth.

“This is not a ‘take from one, give to the other’ … this is additive,” she said. Our recommendation is to leave those who are promoted on time, or even late ... as they are today — but merely to do something for those who are being promoted early.”

However, in its report, the QRMC proposes that an increase in special and incentive pays could be drawn from that portion of future pay raises approved by Congress that exceeds the Employment Cost Index.

In recent years, the Pentagon has asked for annual military pay raises that match the increases in ECI, and no more.

Congress generally has been adding one-half percentage point to those requests. It’s that margin that the QRMC would initially mine to fund additional special and incentive pays.

Once a determination was made that special and incentive pays were in “correct proportion” to other forms of cash compensation, the QRMC said further increases should be tied to basic pay increases.

Defense officials said they were pleased with the group’s work. Bill Carr, under secretary of defense for military personnel policy, called it “a great QRMC because it focused on actionable things, each one very important to the troops.

“We will now review each suggestion, and offer changes to policy or law when there is agreement that a change is timely and right,” Carr said.

DISCUSS: The study findings