Is the Current Military Compensation System Reasonable, Appropriate, Affordable, and Sustainable?
Gao ID: A84690 July 19, 2005This is a Comptroller General Presentation given to the Defense Advisory Committee on Military Compensation on July 19, 2005. Major topics of this presentation include: the nation facing increasing fiscal imbalance, growing active duty compensation costs, components that have increased active duty compensation, allocation of compensation costs in 2003, and service members' perceptions of their compensation.
This text file was formatted by the U.S. Government Accountability
Office (GAO) to be accessible to users with visual impairments, as part
of a longer term project to improve GAO products' accessibility. Every
attempt has been made to maintain the structural and data integrity of
the original printed product. Accessibility features, such as text
descriptions of tables, consecutively numbered footnotes placed at the
end of the file, and the text of agency comment letters, are provided
but may not exactly duplicate the presentation or format of the printed
version. The portable document format (PDF) file is an exact electronic
replica of the printed version. We welcome your feedback. Please E-mail
your comments regarding the contents or accessibility features of this
document to Webmaster@gao.gov.
This is a work of the U.S. government and is not subject to copyright
protection in the United States. It may be reproduced and distributed
in its entirety without further permission from GAO. Because this work
may contain copyrighted images or other material, permission from the
copyright holder may be necessary if you wish to reproduce this
material separately.
Is the Current Military Compensation System Reasonable, Appropriate,
Affordable, and Sustainable?
The Honorable David M. Walker:
Comptroller General of the United States:
Defense Advisory Committee on Military Compensation:
July 19, 2005:
The Nation Faces Increasing Fiscal Imbalance:
* We face large and growing structural deficits largely due to known
demographic trends, rising health care costs, and relatively low
federal revenues as a percentage of the economy.
* Faster economic growth can help but will not come close to solving
the problem.
* GAO's simulations show that balancing the budget in 2040 could
require actions such as cutting total federal spending by about 60
percent or by raising taxes by about 2.5 times today's level.
* We believe the current fiscal policy is not sustainable and the way
forward includes reexamining the base of federal programs, policies,
functions, and activities.[NOTE]
* The budget crunch is coming to all of government, including DOD.
NOTE: GAO, 21st Century Challenges: Reexamining the Base of the Federal
Government, GAO-05-325SP (Washington, D.C.: February 2005).
Active Duty Compensation Costs Are Growing:
* We undertook this effort under my authority because of our growing
concern about the nation's fiscal imbalance.
* In our view, the significant approximately $158 billion in fiscal
year 2004 and growing costs of pay and benefits, especially health
care, within DOD's budget should be reexamined and revised to ensure
that the compensation system is reasonable, appropriate, affordable,
and sustainable.
* This briefing summarizes information from our report on the costs of
active duty military compensation.[NOTE]
NOTE: Military Personnel. DOD Needs to Improve the Transparency and
Reassess the Reasonableness, Appropriateness, Affordability, and
Sustainability of Its Military Compensation System, GAO-05-798
(Washington, D.C.: July 19, 2005).
Active Duty Compensation Costs to the Government Have Significantly
Increased:
[See PDF for image] --graphic text:
Bar graph with five items, followed by a linear table.
Total Compensation Costs for Fiscal Years 2000-2004:
2004 constant dollars:
2000: $123;
2001: $131;
2002: $141;
2003: $155;
2004: $158.
Per capita costs;
2000: $89,636;
2001: $95,096;
2002: $100,894;
2003: $109,245;
Source: GAO analysis.
NOTE: Our calculations include supplemental funding for the Global War
on Terrorism. Since fiscal year 2002 over 100,000 mobilized reservists
were paid out of the cash compensation. If you considered these
personnel, the average costs to provide compensation would be about
$5,000 per capita lower.
[End of figure]
Components That Have Increased Active Duty Compensation:
Cash Pay:
* Basic pay increased from $38.4 billion to $47.4 billion from fiscal
years 2000 to 2004-an increase of about 23 percent.
* Special and Incentive pays increased from $3.3 billion to $4.3
billion from fiscal years 2000 to 2004, but only comprised 3 percent of
total compensation and 6 percent of cash compensation in fiscal year
2004.
* Allowances for housing increased by about 66 percent from $7.3
billion to $12 billion between fiscal years 2000 to 2004.
Benefits:
* Health care costs for active duty service members and their
dependents as well as accrual costs for retirees and their dependents.
* Increased from about $13.8 billion to $23.3 billion between fiscal
years 2000 and 2004, an increase of about 69 percent.
Allocation of Compensation Costs in 2003:
[See PDF for image] --graphic text:
Three pie charts; two with two items each and one with three items.
Private Industry Average Costs of Compensation: $50,509;
Salary/Wages: 82%;
Benefits: 18%.
Civilian Federal Government Average Costs of Compensation: $92,330;
Salary/Wages: 67%;
Benefits: 33%.
Active Duty Service Member Average Costs of Compensation: $109,245;
Cash: 49%;
Deferred Benefits: 31%;
Noncash Benefits: 20%.
Private Industry and Civilian Federal Government Employee Source:
Department of Commerce, Bureau of Economic Analysis.
Active Duty Service Member Source: GAO analysis.
[End of figure]
Current Mix Is Inefficient for Recruiting and Retention:
* Cash pay today is generally accepted as a more efficient tool than
future cash or benefits for recruiting and retention.
* Not only do people heavily discount the value of future benefits, but
less than one in five service members will receive the most lucrative
and costly benefits offered by the military, specifically active duty
retirement pay and health care benefits.
Percent of Personnel Who Service a 20-Year Career:
[See PDF for image] --graphic text:
Bar graph with three items.
Officer: 46%;
Enlisted: 15%;
Overall: 17%.
Source: DOD.
[End of figure]
Service Members' Perceptions of Their Compensation:
* Our focus group findings and DOD survey results on compensation
suggest that a culture of dissatisfaction and misunderstanding about
compensation exists among service members. For example, our results
showed that:
- Almost 80 percent of service members in our focus group survey
believed they are paid less than their civilian counterparts; in
contrast, a recent DOD review found that, on average, military pay was
at the 70th percentile or higher of civilian wages.[NOTE]
- About 44 percent of the service members in our focus group survey
reported they were still dissatisfied with basic pay, despite an
average increase of about 23 percent from fiscal years 2000 to 2004.
* Service members were more satisfied (47 percent satisfied; 28 percent
dissatisfied) with their cash compensation as a whole than they were
with specific aspects like basic pay, housing allowance, or subsistence
allowance.
* Service members' appear to prefer cash compensation: in almost all 40
focus group sessions, service members were willing to decrease their
noncash benefits to increase their cash compensation.
NOTE: Office of the Under Secretary of Defense for Personnel and
Readiness, The Report from the Ninth Quadrennial Review of Military
Compensation (Washington, D.C.: May 2002).
What DOD Needs to Do:
* DOD's compensation strategies and principles (including benefits
programs) need to be reexamined and revised to ensure DOD is using its
resources in a cost-effective manner, including:
- Compiling the total costs to provide military compensation and
communicating these costs to decision makers within DOD and Congress;
- Assessing the affordability and sustainability of the compensation
system as well as the reasonableness and appropriateness of the
allocation to cash and benefits and whether changes in the allocation
are needed to more efficiently achieve recruiting and retention goals
in the 21st century;
- Communicating to service members the value of pay and benefits and
the competitiveness of the total compensation package when compared to
civilian counterparts.
What the Congress Needs to Do:
* Congress must also do its part by considering the long term
affordability and sustainability of any additional changes to pay and
benefits for military personnel and veterans, including the long term
implications for the overall federal deficit and military readiness.
* Furthermore, the Congress should also consider how best to proceed
with any significant potential restructuring of existing military
compensation policies and practices, including whether a formal
commission may be necessary.
Questions?
[End of slide presentation]
