Guard and Reserve Personnel
Fiscal, Security, and Human Capital Challenges Should be Considered in Developing a Revised Business Model for the Reserve Component Gao ID: GAO-07-984 June 20, 2007Over 580,000 reservists have been activated for military operations between September 2001 and March 2007. The challenges of continuing to mobilize large numbers of reserve component servicemembers for ongoing operations while balancing their support to homeland defense missions have led to questions about whether changes are needed in the way the reserve components are structured and resourced, particularly in light of mounting 21st century fiscal imbalances. This testimony focuses on: (1) the nation's fiscal and security challenges and their implications for the Department of Defense (DOD) and the National Guard and Reserves; (2) the need for DOD to better align its reserve component business model, including human capital strategies, with the reserve forces' current and future needs; and (3) the extent to which DOD's current compensation system for reserve and National Guard personnel is helping the department to meet its human capital goals of recruiting and retaining a high-quality force. The testimony is based on GAO's body of work on the nation's long-term fiscal outlook, National Guard and reserve readiness, military personnel issues such as recruitment and retention, and the report GAO is issuing today on reserve and National Guard compensation issues. GAO has made several recommendations to address these challenges.
The nation's growing fiscal imbalance and changing security environment require a fundamental reexamination of defense activities, including the role and structure of the reserve components. The fiscal imbalance, which is due to factors such as mounting budget deficits and rising health care costs, could threaten the nation's future economy and national security. As the fiscal imbalance constrains federal funding, future defense budgets are likely to be affected. DOD faces significant fiscal challenges due to rising compensation and acquisition costs, military operations, and inefficient policies and business practices. To put DOD on a more sustainable path, GAO has suggested that DOD reexamine defense policies and practices, address high risk areas, and develop budgets that set clear priorities based on current and future threats. Reexamining reserve component policies and practices should be included as part of an overall DOD-wide effort to address long-term affordability and sustainability challenges. DOD's heavy reliance on the reserve components in recent years to support military operations and homeland security needs has highlighted the need to better align the reserves' business model with their 21st century roles. GAO's work has shown that the reserve components face several human capital challenges that will need to be considered as part of an overall effort to develop a new business model. Specifically, GAO's past work has shown that the reserves face challenges including (1) recruiting and retaining members with needed skills, and (2) developing policies, procedures and business processes that facilitate a smooth transition between reserve and active duty status. GAO has made numerous recommendations to assist DOD in addressing these issues. DOD also does not know the extent to which its reserve compensation system is helping to meet recruiting and retention goals because (1) it has not established a strategy to identify the appropriate mix of compensation and (2) its approach does not provide decision makers with adequate transparency over total costs to compensate reservists, which have risen 47 percent since fiscal year (FY) 2000 in constant dollars. DOD's and Congress' piecemeal approach of adding pays and benefits has contributed to a shift in the mix of compensation toward more deferred benefits--such as retirement pay and health care--from 12 percent of total compensation in FY 2000 to 28 percent in FY 2006, primarily due to costs for enhanced health care for retirees. This allocation is questionable from an efficiency perspective since only 24 percent of those who join the reserves will ultimately receive retirement benefits. Further, reserve compensation costs are found in multiple federal budgets, which does not provide decision makers with adequate transparency over total costs. GAO is recommending today that DOD (1) establish an overall compensation strategy and (2) compile costs in a transparent manner to enable decision makers to determine the affordability, effectiveness, and sustainability of the reserve compensation system. DOD partially concurred with the recommendations.
GAO-07-984, Guard and Reserve Personnel: Fiscal, Security, and Human Capital Challenges Should be Considered in Developing a Revised Business Model for the Reserve Component
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Testimony:
Before the Commission on the National Guard and Reserves:
United States Government Accountability Office:
GAO:
For Release on Delivery Expected at 10:30 a.m. EDT:
Wednesday, June 20, 2007:
Guard and Reserve Personnel:
Fiscal, Security, and Human Capital Challenges Should be Considered in
Developing a Revised Business Model for the Reserve Component:
Statement of David M. Walker:
Comptroller General of the United States:
GAO-07-984:
GAO Highlights:
Highlights of GAO-07-984, a testimony before the Commission on the
National Guard and Reserves
Why GAO Did This Study:
Over 580,000 reservists have been activated for military operations
between September 2001 and March 2007. The challenges of continuing to
mobilize large numbers of reserve component servicemembers for ongoing
operations while balancing their support to homeland defense missions
have led to questions about whether changes are needed in the way the
reserve components are structured and resourced, particularly in light
of mounting 21st century fiscal imbalances.
This testimony focuses on: (1) the nation‘s fiscal and security
challenges and their implications for the Department of Defense (DOD)
and the National Guard and Reserves; (2) the need for DOD to better
align its reserve component business model, including human capital
strategies, with the reserve forces‘ current and future needs; and (3)
the extent to which DOD‘s current compensation system for reserve and
National Guard personnel is helping the department to meet its human
capital goals of recruiting and retaining a high-quality force. The
testimony is based on GAO‘s body of work on the nation‘s long-term
fiscal outlook, National Guard and reserve readiness, military
personnel issues such as recruitment and retention, and the report GAO
is issuing today on reserve and National Guard compensation issues. GAO
has made several recommendations to address these challenges.
What GAO Found:
The nation‘s growing fiscal imbalance and changing security environment
require a fundamental reexamination of defense activities, including
the role and structure of the reserve components. The fiscal imbalance,
which is due to factors such as mounting budget deficits and rising
health care costs, could threaten the nation‘s future economy and
national security. As the fiscal imbalance constrains federal funding,
future defense budgets are likely to be affected. DOD faces significant
fiscal challenges due to rising compensation and acquisition costs,
military operations, and inefficient policies and business practices.
To put DOD on a more sustainable path, GAO has suggested that DOD
reexamine defense policies and practices, address high risk areas, and
develop budgets that set clear priorities based on current and future
threats. Reexamining reserve component policies and practices should be
included as part of an overall DOD-wide effort to address long-term
affordability and sustainability challenges.
DOD‘s heavy reliance on the reserve components in recent years to
support military operations and homeland security needs has highlighted
the need to better align the reserves‘ business model with their 21st
century roles. GAO‘s work has shown that the reserve components face
several human capital challenges that will need to be considered as
part of an overall effort to develop a new business model.
Specifically, GAO‘s past work has shown that the reserves face
challenges including (1) recruiting and retaining members with needed
skills, and (2) developing policies, procedures and business processes
that facilitate a smooth transition between reserve and active duty
status. GAO has made numerous recommendations to assist DOD in
addressing these issues.
DOD also does not know the extent to which its reserve compensation
system is helping to meet recruiting and retention goals because (1) it
has not established a strategy to identify the appropriate mix of
compensation and (2) its approach does not provide decision makers with
adequate transparency over total costs to compensate reservists, which
have risen 47 percent since fiscal year (FY) 2000 in constant dollars.
DOD‘s and Congress‘ piecemeal approach of adding pays and benefits has
contributed to a shift in the mix of compensation toward more deferred
benefits”such as retirement pay and health care”from 12 percent of
total compensation in FY 2000 to 28 percent in FY 2006, primarily due
to costs for enhanced health care for retirees. This allocation is
questionable from an efficiency perspective since only 24 percent of
those who join the reserves will ultimately receive retirement
benefits. Further, reserve compensation costs are found in multiple
federal budgets, which does not provide decision makers with adequate
transparency over total costs. GAO is recommending today that DOD (1)
establish an overall compensation strategy and (2) compile costs in a
transparent manner to enable decision makers to determine the
affordability, effectiveness, and sustainability of the reserve
compensation system. DOD partially concurred with the recommendations.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-07-984].
To view the full product, including the scope and methodology, click on
the link above. For more information, contact Janet A.
St. Laurent at (202) 512-4402 or stlaurentj@gao.gov.
[End of section]
Mr. Chairman and Members of the Commission:
It is a pleasure to appear before you today to discuss the challenges
the National Guard and reserves are facing as the nation moves into the
21st century with mounting fiscal imbalances and new national security
concerns overseas and homeland security needs at home. The work the
Commission is undertaking is very important, and it is a tribute to the
Commission that Congress and the Department of Defense (DOD) have
already begun implementing some of the recommendations in the
Commission's March 2007 report. As you know, between September 2001 and
March 2007, over 580,000 reservists have been activated in numbers not
seen since World War II, and reservists from all the services have made
major contributions to sustaining ongoing overseas operations as well
as homeland security activities. The challenges in mobilizing large
numbers of reservists on an ongoing basis have led to questions about
whether changes are needed in the way the reserve components are
structured and resourced. Over the last few years, we have undertaken a
body of work examining the National Guard and reserve's changing roles
and missions and recruiting, training, and equipping challenges. Today,
I would like to provide you with our observations based on this work.
In addition, I would like to highlight our report that is being issued
today that focuses on reserve component pay and compensation.[Footnote
1]
My statement today will focus on three main issues: (1) the nation's
fiscal and security challenges and their implications for DOD and its
reserve components, (2) the need for DOD to better align its business
model with the reserve forces' current and future needs, and (3) the
extent to which DOD's current compensation system for reservists is
helping the department to meet its human capital goals of recruiting
and retaining a high-quality force. My statement is based on our
analysis of the nation's long-term fiscal outlook, as well as
challenges in maintaining U.S. military readiness for overseas and
homeland missions. In addition, this testimony relies heavily on our
past work on human capital issues, including recruitment, retention,
and pay and compensation. We updated some of our information during
recent discussions with DOD, Army, and National Guard Bureau officials.
To perform our assessment of DOD's reserve pay and compensation we
analyzed relevant regulations, legislation, and budget justification
books, and we interviewed appropriate officials at DOD and the
Department of Veterans Affairs. Our scope included fiscal year 2000
through fiscal year 2006 to capture costs prior to the increased use of
reservists and associated changes to reserve and Guard compensation. We
conducted our work in accordance with generally accepted government
auditing standards. A list of our past reports can be found in the
Related GAO Products section at the end of this statement.
Summary:
The nation's growing fiscal imbalance and changing security environment
require a fundamental reexamination of defense activities, including
the role and structure of the reserve components. The nation faces
large and growing structural deficits due primarily to known
demographic trends and rising health care costs. If left unchecked,
these fiscal imbalances will ultimately impede economic growth, which
could impact our ability to address national and homeland security
needs. The imbalances are so significant that neither slowing the
discretionary spending growth nor allowing certain tax provisions to
expire--nor both together--would eliminate them. Rather, a fundamental
reexamination of major priorities is needed to ensure that federal
programs and priorities respond to emerging social, economic, and
security changes and challenges. To facilitate this reexamination, we
issued a 21st Century Challenges report which highlighted the need for
reexamining the base of federal government in 12 areas, including
national defense.[Footnote 2] Within national defense, we suggested
several key issues that need to be addressed including whether the
role, structure, and business model of the reserve components are
appropriate in light of the changing securing environment. These issues
will need to be addressed in the context of DOD's overall fiscal
challenges, which include rising compensation and acquisition costs,
the cost of supporting ongoing military operations, and inefficient
policies and business practices. To put DOD on a more sustainable path,
we have suggested that DOD reexamine key defense policies and
practices, develop budgets that set clear priorities based on current
and future needs, establish a Chief Management Officer to oversee
business transformation, and address areas within defense that we have
identified as high risk.[Footnote 3] As the Commission completes its
work, it will be important to examine reserve component policies and
practices and evaluate future funding requirements for the Guard and
reserves in the context of DOD's broader affordability and
sustainability challenges.
DOD's heavy reliance on the reserve components in recent years to
support operations in Iraq, Afghanistan, and at home has highlighted
the need to better align the reserve components' business model to
support their 21st century roles. An effective business model--
including an integrated set of strategies and policies for recruiting,
training, and compensating individuals and equipping units--is needed
to support the National Guard and reserves in conducting 21st century
missions within fiscally sustainable resource levels. Although each of
the services' reserve components face challenges in adapting to the new
security environment, our work has shown that the current business
model of the Army National Guard and Army Reserve is not sustainable in
the long-term given their changing roles and high pace of operations.
In addition, our past work has shown that all of the reserve components
face human capital challenges that will need to be addressed as part of
a systematic effort to reassess and revise the reserve component
business model. These challenges include: (1) addressing inefficiencies
in recruiting and retaining personnel in high-demand career fields and
occupations, and (2) developing policies, procedures, and business
processes to facilitate a smooth transition of personnel between
reserve and active duty status. We have made numerous recommendations
intended to help the department address these issues. For example, we
have recommended that DOD assess the Army Reserve's requirements for
full-time support servicemembers and develop a strategic framework that
integrates and aligns personnel policies to meet organizational goals.
While DOD has taken some recent steps to address our recommendations,
such as establishing new mobilization policies intended to achieve more
predictable deployments, DOD has not fully addressed these challenges
in a way that supports an integrated business model.
An appropriate compensation strategy that supports human capital goals
is another key component of a sustainable business model. However, DOD
does not know the extent to which its current compensation system for
reserve and Guard servicemembers is helping it meet its human capital
goals of recruiting and retaining personnel. Two primary reasons for
this uncertainty are that (1) the department has not established an
overall compensation strategy to identify the appropriate mix of
reserve compensation to efficiently maintain its force, and (2) its
approach to compensation does not provide decision makers in Congress
and DOD with adequate transparency over total costs for reservists.
Using fiscal year 2006 constant dollars, the federal government's total
cost to compensate part-time and full-time reserve servicemembers--
including cash, noncash, and deferred benefits--has increased about 47
percent since fiscal year 2000, rising from about $13.9 billion in
fiscal year 2000 to about $20.5 billion in fiscal year 2006. Much of
the total growth in compensation is driven by the costs for deferred
compensation--that is, funds set aside today for future compensation
such as retirement pay and health care. The cost for deferred
compensation has tripled over this period, primarily due to costs to
provide enhanced health care benefits for retirees. This allocation is
questionable from an efficiency perspective, since fewer than one in
four of those who join the reserves will ultimately earn retirement
benefits. The shift in the mix of compensation can be attributed to the
fact that DOD and Congress have added pays and benefits for reservists
and Guard service members in recent years using a piecemeal approach
that has not been based on an established strategy and does not
adequately consider the appropriateness, affordability, and
sustainability of the increased compensation costs. Moreover, DOD does
not know the efficiency and effectiveness of these changes in meeting
its recruiting and retention goals because it has not established
performance measures. Furthermore, because costs to compensate
servicemembers are found in multiple budgets both within and outside of
DOD and are not compiled in a single source to provide total cost,
DOD's approach to reserve compensation does not provide decision makers
in Congress and DOD with adequate transparency over compensation--
including the allocation of costs to cash, noncash, and deferred
compensation, as well as the cost for mobilized reservists. Until total
reserve compensation costs are compiled in a transparent manner--and
decisions are based on established compensation strategies--decision
makers will be unable to determine the affordability, cost
effectiveness, and ultimately the sustainability of the reserve
compensation system. In our report on reserve compensation that we are
issuing today, we are making recommendations that DOD (1) establish an
overall compensation strategy and performance measures and (2) compile
costs in a transparent manner to aid decision makers. In commenting on
a draft of our report on reserve compensation, DOD partially concurred
with our recommendations.
Background:
DOD has six reserve components: the Army National Guard, the Army
Reserve, the Air National Guard, the Air Force Reserve, the Navy
Reserve, and the Marine Corps Reserve. The six reserve components
combined are authorized about 830,000 personnel (see fig. 1).
Figure 1: Reserve Component Authorized Personnel:
[See PDF for image]
Source: GAO analysis of DOD data.
[End of figure]
Sixty-five percent of the total authorized personnel in all of the
reserve components combined are in the two Army reserve components.
Each of the reserve components are composed primarily of citizen
soldiers who balance the demands of a civilian career with military
service on a part-time basis, usually 1 weekend a month and 2 weeks a
year for annual training. In addition, reserve forces have some full-
time servicemembers who enhance readiness by assisting unit commanders
in administrative, training, and maintenance tasks.
DOD's fiscal year 2008 budget request for the Army National Guard and
Army Reserve is about $13.5 billion and $7.1 billion respectively. When
combined, these amounts equate to about 16 percent of the Army's total
budget request. DOD has also requested about $8.2 billion for the Air
National Guard and $4.3 billion for the Air Force Reserve, which equate
to about 9 percent of the Air Force's total budget request. In
contrast, the Navy and Marine Corps allocate about 3 and 5 percent
respectively of their service's budgets to their reserve components,
which are significantly smaller in size than the Army and Air Force
reserve components.
On September 14, 2001, President Bush declared that a national
emergency existed as a result of the attacks on the World Trade Center
in New York and the Pentagon in Washington, D.C., and he invoked the
partial mobilization authority[Footnote 4] which enabled the activation
of up to 1,000,000 reservists for periods of active duty not to exceed
24 consecutive months. The Office of the Secretary of Defense
implements the activation of reservists under this mobilization
authority, and provides policy, programs, and guidance for the
mobilization and demobilization of the reserve components.
The National Guard, comprised of the Army National Guard and the Air
National Guard, has a unique dual mission that consists of both federal
and state roles. In its federal status, along with the Army Reserve and
Air Force Reserve, respectively, the National Guard has been deployed
to Afghanistan and Iraq, as well as to other locations around the
world. In this status, National Guard members are paid using federal
funds. The National Guard may also be activated under state law to
provide critical infrastructure protection or respond to state
emergencies under control of the governor. In this status, the National
Guard is paid using state funds. In addition, the National Guard may be
activated under Title 32 of the United States Code by which Guard
forces remain under the control of the state governor but are
compensated with federal funding. This authority has been used to
assist states in responding to large-scale, multistate events, such as
Hurricane Katrina in 2005.
Long Term Fiscal Challenges Require DOD to Balance Wants, Needs, and
Affordability of Its Active and Reserve Forces:
The nation's growing fiscal imbalance and changing security environment
require a fundamental reexamination of defense activities, including
the role and structure of the reserve components. Our nation is on an
unsustainable fiscal path. Long-term budget simulations we and
others[Footnote 5] have performed indicate that, over the long-term, we
face large and growing structural deficits due primarily to known
demographic trends and rising health care costs. Absent policy changes
on the spending and /or revenue side of the budget, the growth in
mandatory spending on federal retirement and health entitlements will
encumber an escalating share of the government's resources. By 2040
federal revenues may be adequate to pay little more than interest on
the federal debt. The imbalances are so significant that neither
slowing discretionary spending growth nor allowing certain tax
provisions to expire--nor both together--would eliminate them. If not
addressed in the coming years, these fiscal imbalances will lead to
serious budgetary pressures on federal discretionary spending which
includes defense accounts. A symptom of these budgetary pressures is
seen in the declining proportion of federal spending available for
discretionary spending. For example, while the proportion of federal
spending for mandatory programs doubled from 26 percent in 1966 to 53
percent in 2006, the proportion of federal spending available for
discretionary spending has decreased from 67 percent to 38 percent in
the same period (see fig. 2).
Figure 2: Federal Spending for Mandatory and Discretionary Programs:
[See PDF for image]
Source: Office of Management and Budget.
[End of figure]
Another sign of the existing budgetary pressure on defense spending is
seen in the declining share of defense spending as a proportion of
total federal spending. Since 1966 defense spending as a proportion of
total federal spending has declined from 43 percent to 20 percent (see
fig. 3).
Figure 3: Composition of Federal Spending:
[See PDF for image]
Source: Office of Management and Budget.
Note: Numbers may not add to 100 percent due to rounding.
[End of figure]
Federal spending on defense in constant 2000 dollars has fluctuated
over the years in response to changing economic conditions and a
changing security environment (see fig. 4). For example, defense
spending declined in real terms from 1990 to 1998 following the end of
the Cold War. More recently, defense spending has increased as result
of the Global War on Terror. However, future pressures on the federal
budget are likely to lead to a downturn in defense spending in the
future.
Figure 4: National Defense Outlays in Constant Fiscal Year 2000
Dollars, 1962-2008:
[See PDF for image]
Source: Office of Management and Budget.
Note: Amounts exclude supplemental funding to support military
operations.
[End of figure]
To address the tough choices for our fiscal future, a fundamental
reexamination of major priorities is needed. This will enable us to
recapture our fiscal flexibility and ensure that federal programs and
priorities respond to emerging social, economic, and security changes
and challenges. Our capacity to address a range of important challenges
reshaping American society and our place in the world will be
predicated on when and how we deal with this historically unprecedented
long-term fiscal challenge. Absent action to avert this fiscal crisis,
these forces will ultimately erode, if not suddenly damage, our
economy, our standard of living, and ultimately our national security.
Ultimately, this reexamination should entail a national discussion
about what Americans want from their government and how much they are
willing to pay for those things.
In addition to these growing fiscal constraints, DOD faces a number of
other near-and long -term challenges. DOD's near-term challenges
include paying for operations in Iraq and Afghanistan and maintaining
readiness. To pay for its operations, DOD has been given a significant
infusion of funds, with an annual appropriation totaling over $430
billion for fiscal year 2007 and additional funding for homeland
defense and operations in Iraq, Afghanistan, and elsewhere
approximating $380 billion over the past 3 fiscal years. Despite this
infusion of funds, DOD still faces significant challenges in
maintaining readiness in all components active and reserve. For
example, the significant use of Army National Guard forces for overseas
and homeland security missions since September 11, 2001, has resulted
in declining readiness, weakening the Army National Guard's
preparedness for future missions.[Footnote 6] In addition, DOD faces
the long-term challenge of determining how it will reorganize its
forces and identify the capabilities it will need to protect the
country from current, emerging, and future conventional and
unconventional security threats. Specific issues that will need to be
addressed while DOD meets these long-term challenges include weapons
modernization, force transformation, and military pay and benefits.
Striking an affordable balance between near-and long-term needs will be
an ongoing challenge, particularly with the federal government's
current and projected fiscal imbalances.
Although DOD's budget is likely to be constrained by future fiscal
limitations, DOD continues to pursue some inefficient programs and
practices, including, directly or indirectly, 15 of 27 areas that we
have identified as high risk.[Footnote 7] Since 1990, we have
periodically reported on government operations that we identify as high
risk and which need urgent attention and transformation in order to
ensure that our national government functions in the most economical,
efficient, and effective manner possible. Out of the 27 items on our
list of high-risk areas governmentwide, DOD has sole responsibility for
8. These 8 areas are: (1) business transformation, (2) business systems
modernization, (3) personnel security clearance program, (4) support
infrastructure management, (5) financial management, (6) supply chain
management, (7) weapon systems acquisition, and (8) contract
management. In addition to the DOD-specific high-risk areas, DOD shares
responsibility for 7 other high-risk areas that are governmentwide in
scope, such as strategic human capital management. DOD has thus far
failed to effectively address many of these high risk programs
resulting in billions of dollars spent annually to sustain inefficient
policies and business practices in key operations that support our
forces.
To address these critical inefficiencies, we have suggested that DOD
reexamine defense policies and practices, develop budgets that set
clear priorities and consider long-term resource implications, address
high-risk areas, and designate a Chief Management Officer[Footnote 8]
who would be responsible for overall business transformation efforts.
In addition, to facilitate decision makers in this process of
reexamining the base of the federal government, we have drawn on our
past and pending work to produce a 21st Century Challenges
report[Footnote 9] which provides examples of the kinds of hard choices
the country will need to make stemming from these fiscal challenges.
This report identifies challenges in 12 broad areas including homeland
security, international affairs, and national defense. Within the
national defense area, we draw attention to specific challenges DOD and
the nation face concerning the reserve component. These challenges
include addressing the following questions:
* Are the active and reserve components appropriately sized,
structured, and used to meet the current and future national security
demands?
* Is the current business model sustainable for the reserve component?
Reexamining reserve component policies and practices should be included
as part of the overall DOD-wide reexamination effort we advocate.
Moreover, as the Commission evaluates potential changes to the Guard
and reserves' structure and policies, it will be important to consider
the funding implications of alternative approaches within the context
of the nation's and DOD's fiscal challenges. A variety of competing
proposals are being made to restructure and enhance funding for the
reserve components, such as expanding personnel benefits and procuring
equipment. It will be important to understand the analytical basis for
such proposals and assess the extent to which they address long-term
affordability and sustainability challenges.
Guard and Reserve Business Model Should be Revised to Better Align with
21st Century Roles and Missions:
Although DOD recognizes that the changing security environment has
placed new demands on reserve components, DOD has not yet fully adapted
the reserve component business model to support reservists' evolving
roles and missions. An effective business model--including an
integrated set of strategies and policies for recruiting, training, and
compensating individuals as well as for equipping units--is needed to
support the National Guard and reserves in conducting 21st century
missions within fiscally sustainable resource levels. Although each of
the services' reserve components faces challenges, our work has shown
that the Army National Guard and Army Reserve do not have a sustainable
set of policies and resourcing strategies that aligns with their
changing roles and high pace of operations. In addition, we have found
that all of the reserve components face human capital challenges that
will need to be addressed as part of a systematic effort to reassess
and revise the reserve components' business model. These challenges
include: (1) addressing inefficiencies in recruiting and retaining
personnel with needed skills, and (2) eliminating inefficient policies,
procedures, and business systems which impede the smooth transition of
personnel between reserve and active duty status. While DOD has taken
some recent steps to address these challenges, such as establishing new
mobilization policies intended to achieve more predictable deployments,
DOD has not fully addressed these challenges in a way that supports an
integrated business model.
Reserve Component Business Model Is Not Fully Aligned with Heavy
Reliance on Reserves in the New Security Environment:
The changing security environment has had significant implications for
the Guard and reserves and led to a need to reexamine and revise the
reserve component business model. Although each of the services'
reserve components has faced challenges in adapting to the new security
environment, the Army National Guard and Army Reserve are most in need
of a fundamental rethinking of the manner in which they are organized
and structured to support operations at home and abroad. We have
previously reported and testified to the Commission that DOD's business
model for the Army National Guard is not sustainable over time at the
current pace of operations as evidenced by the significant personnel
and equipment shortages that nondeployed National Guard units have
experienced in order to fully equip and staff units deployed
overseas.[Footnote 10] The ongoing demand for Army National Guard units
to support overseas operations represents a fundamental change from the
strategic reserve mission for which its units were structured. We have
also reported that the Army National Guard historically has been
structured primarily to serve as a strategic reserve force and has
faced significant challenges and worsening personnel and equipment
shortages as a result of supporting ongoing operations.[Footnote 11] In
addition, potential threats against the homeland have implications for
the reserves' missions and business model. Both the Army National Guard
and Air National Guard have increasingly been called upon to prepare
for and respond to domestic disasters such as Hurricane
Katrina.[Footnote 12] Moreover, the National Guard could potentially be
called on to play a key role in responding to terrorist events. In
January 2007, we reported that the types and quantities of equipment
the National Guard needs to respond to potential large-scale terrorist
events and natural disasters have not been fully identified because the
multiple federal and state agencies that would have roles in responding
to such events have not completed and integrated their plans.[Footnote
13] Establishing plans and requirements for National Guard units to
respond to homeland security missions should be a key starting part of
a comprehensive reassessment of the Army and Air National Guard's
business model.
The other reserve components are also playing key roles in supporting
ongoing operations and adapting to new missions which require them to
reexamine long-standing policies and ways of doing business. For
example, numerous Marine Corps reserve units have deployed to Iraq and
Afghanistan to help meet the high demand for ground forces, and
nondeployed units face equipment and personnel challenges. In addition,
the Air National Guard, Air Force Reserve, and Navy Reserve have
contributed in numerous ways such as providing airlift and intelligence
capabilities. Although Air National Guard and Air Force Reserve units
have historically been resourced at higher levels than their Army
counterparts, senior leaders have recently testified about increasing
readiness challenges in supporting ongoing operations and an aging
aircraft inventory.
The reserve components have taken some steps to adjust their business
models to align with their new roles, but face challenges in equipping
and training personnel. The Army is implementing a new modular brigade
structure for its active and reserve components. However, implementing
this restructuring is complicated by challenges such as significant
retraining of personnel into reassigned specialties that will take
several years to complete. In addition, the Air Force's planned changes
to its reserve force structure will have significant impacts on
personnel and training requirements.
DOD Needs More Effective Strategies for Recruiting and Retaining
Personnel with Required Skills:
DOD will also need to develop more effective strategies for recruiting
and retaining personnel in needed occupational specialties as part of
an overall effort to adapt the reserve components' business model to
meet the needs of the new security environment. Even when the reserve
components have met their overall goals for recruiting and retaining
servicemembers during the last few years, they have faced difficulties
recruiting and retaining personnel with certain skills. DOD must
recruit and retain tens of thousands of reserve and National Guard
members each year to fill almost 860 occupational specialties. The
current pace of operations and the likelihood of deployment of
reservists from all the services, coupled with a growing economy that
offers opportunities in the private sector, have made recruiting and
retaining members for all the services and components a significant
challenge. In addition, DOD reports that over half of today's youth
between 16 and 21 cannot meet the military's entry standards for
education, aptitude, health, moral character, or other requirements. In
addition, future retention challenges will also include the dynamics of
a new generation that appear to be increasingly likely to make frequent
job changes over the course of a career.
We reported in November 2005 that even when DOD met aggregate
recruiting and retention goals, it had too many personnel in some
occupations and not enough in others. For example, the services were
not consistently able to fill all their requirements for about 47
percent of their reserve and National Guard occupational specialties,
while other occupational specialties were consistently
overfilled.[Footnote 14] Underfilled occupations included: combat
engineers, intelligence analysts, field artillery surveyors and data
systems specialists, and explosive ordnance disposal technicians. On
the other hand, the services consistently were able to recruit more
personnel in about 21 percent of reserve and National Guard
occupational specialties than they were authorized. Examples of
specialties that were overfilled included: avionic mechanics, personnel
clerks, supply specialists, motor vehicle operators, and patient
administration specialists.
We also noted that while DOD had taken several steps, such as adjusting
its recruiting, advertising, and financial incentives programs, to help
meet recruiting and retention goals, DOD lacked information on
financial incentives provided for certain occupational specialties.
This made it difficult for the department to determine whether the
financial incentives were being targeted most effectively. We found
that while DOD requires some reporting by the active components on
their over-and underfilled occupational specialties, the department has
levied no such requirement on the reserve components. Further, DOD
requires the service components to provide minimal justification of
their use of financial incentives paid to service members in some
occupational specialties and lacks the information needed to ensure
funding spent on recruiting and retention is appropriately and
effectively targeted to occupational specialties for which the
components have the greatest need. We recommended that DOD require the
services to report all their over-and underfilled occupational
specialties, including reasons why the specialties are over-and
underfilled, and to justify the use of financial incentives provided to
service members in occupational specialties that have more personnel
than authorized. Based on this information, we also recommended that
DOD develop a management plan to address recruiting and retention
challenges. DOD acknowledged the importance of annually tracking fill
rates across occupations and the need to closely manage bonus programs.
DOD Policies and Procedures Should Facilitate Individuals' Smooth
Transition between Reserve and Active Duty Status:
If the nation expects reservists to routinely support domestic and
overseas contingencies rather than serving as a strategic reserve, DOD
will also need to develop an integrated set of policies, procedures,
and business systems to more efficiently enable reservists to move from
peacetime to operational status. The processes that DOD uses to
transition reservists from their reserve status to active duty status
to support national security objectives--particularly those used to
support involuntary mobilization--have not been efficient in providing
a sustainable flow of trained forces to meet the changing operational
needs of combatant commanders in the new security environment.
Following the start of military operations in Iraq, we reported that
the processes DOD used to activate reserve personnel to support
military operations after September 11, 2001, were hampered by
inefficiencies and DOD lacked adequate systems for tracking personnel
and other resources.[Footnote 15] Specifically, DOD's mobilization
process relied on multiple layers of coordination between the services,
the Office of the Secretary of Defense, and the Joint Staff to
validate, approve, and fill mobilization requirements. In addition, DOD
officials did not have visibility over the entire mobilization process,
including the readiness of the force, primarily because DOD lacked
adequate systems for tracking personnel and other resources within
small units and some systems used by the active and reserve components
were incompatible.[Footnote 16] We recommended that DOD (1) capture
readiness information for all the units that are available to meet
combatant commander requirements so that resources would be visible to
key mobilization officials, (2) develop a single system or fully
integrated automated systems that would provide for the seamless
transfer of reservists' information, and (3) develop a strategic
framework that integrates and aligns personnel policies to meet
organizational goals. We also reported that the Army Reserve and the
Army National Guard were not provided the number of full-time support
personnel they needed to maintain unit readiness and had not been
provided additional staff as units made preparations for
deployments.[Footnote 17] We recommended that the Army reassess the
full-time support needs of the Army Reserve in light of its new
operational role.
DOD has agreed with many of our recommendations to improve the
transition of reserve personnel from peacetime to operational status
and has begun to take actions intended to address mobilization
challenges. For example, in January 2007, the Secretary of Defense
authorized a decrease in the length of mobilizations, such as those to
Iraq and Afghanistan, from 18 months to 1 year[Footnote 18] and
directed the services to manage mobilizations of reservists with the
goal of mobilizing reserve personnel for no more than 1 year for every
5 years. Further, to improve unit cohesion, the Secretary directed that
the services mobilize forces on a unit basis rather than mobilizing
individuals and transferring them to deploying units. However, the
extent to which DOD will be able to implement these policies in the
midst of ongoing operations is unclear. Also, it is not clear what
impact these policies will have on employer support for the reserves.
We recently reported that additional actions are needed to improve
oversight of reserve employment issues, such as improving reporting of
information on reservists' complaints to Congress.[Footnote 19]
We have also identified numerous problems with DOD's data bases and
business systems, which have impeded the smooth transition of personnel
from reserve to active duty status. For example, we found numerous
errors in pay and benefits provided to reservists who were mobilized to
support operations.[Footnote 20] These problems are symptoms of a
larger DOD-wide problem resulting from the proliferation of numerous
service-and component-unique business systems during the past few
decades. DOD initiated the Defense Integrated Military Human Resources
System (DIMHRS) program in fiscal year 1998 to consolidate the
personnel and pay systems across the military components. However, 9
years after program initiation, DOD has yet to deploy DIMHRS, and the
concerns it was intended to address persist.[Footnote 21] In 2005, we
reported that DOD was not effectively managing the DIMHRS program,
thereby jeopardizing the likelihood that it would deliver promised
system capabilities and benefits on time and within budget.[Footnote
22] We made several recommendations aimed at improving the department's
oversight of the program. We are currently evaluating DOD's
implementation of our prior recommendations.
DOD Does Not Have a Compensation Strategy and Lacks Transparency over
National Guard and Reserve Compensation Costs:
Developing compensation strategies targeted to recruit and retain
individuals with needed skills is another key element of a sound
business model. However, DOD does not know the extent to which its
current compensation system for Guard and reserve servicemembers is
helping it meet its human capital goals of recruiting and retaining
personnel. The cost to compensate National Guard and reserve
servicemembers has increased about 47 percent since fiscal year 2000.
In addition, the mix of compensation--cash, noncash, and deferred
compensation--has shifted more toward deferred, even though this may
not be the most efficient use of resources. Moreover, the department
does not know if the current mix is appropriate or sustainable to
efficiently maintain its force primarily because (1) it has not
established an overall compensation strategy and performance measures
and (2) its approach to compensation does not provide decision makers
in Congress and DOD with adequate transparency over total costs for
reservists.
Cost to Compensate National Guard and Reserve Servicemembers Has
Increased Significantly Since Fiscal Year 2000:
The total cost to the federal government to compensate both part-time
and full-time reserve and National Guard servicemembers has increased
significantly--about 47 percent--since fiscal year 2000, increasing
from about $13.9 billion in fiscal year 2000 to about $20.5 billion in
fiscal year 2006. This cost includes: (1) cash compensation, such as
basic pay and other allowances; (2) noncash compensation, such as
education assistance and health care; and (3) deferred compensation,
such as retirement pay and health care. However, this cost does not
include all compensation, such as accrual costs for veterans'
benefits.[Footnote 23] Moreover, these costs do not include National
Guard and reserve members who were called to active duty to support
military operations.
Health care costs are a primary factor contributing to the growth in
reserve compensation. Since fiscal year 2000, total health care costs
for reservists have grown about 500 percent, from $835 million in
fiscal year 2000 to $4.4 billion in fiscal year 2006. This increase is
largely due to new and enhanced health care benefits for retirees. For
example, in 2001 Congress added TRICARE for Life, a health care benefit
for Medicare-eligible retirees,[Footnote 24] and DOD estimates that
TRICARE for Life represented 48 percent of the increase in DOD's
spending on health care from fiscal years 2000 through 2005.[Footnote
25] Additionally, Congress added a premium-based health care benefit
for Selected Reservists and their dependents known as TRICARE Reserve
Select that provides a continuation of health coverage as reservists
transition on and off of active duty.[Footnote 26] According to DOD
estimates, the cost for this new health care benefit will increase in
fiscal year 2008 to about $381 million, and will continue to increase
to about $874 million by fiscal year 2013. Moreover, DOD predicts that
the cost for health care will continue to increase significantly and
consume more than 12 percent of its total budget by fiscal year 2015,
compared to 7.5 percent in fiscal year 2005.
Over this same time period, the per capita cost to the federal
government for part-time drilling reservists[Footnote 27] almost
doubled, from about $10,100 in fiscal year 2000 to about $19,100 in
fiscal year 2006. This per capita cost is an average of what it cost
the government to compensate servicemembers; it is not what the
servicemembers "receive in their paycheck." Servicemembers' individual
cash compensation will vary significantly depending on individual pay
grade and other factors such as years of service and family
status.[Footnote 28] It is noteworthy that this increase in per capita
cost occurred during a time when the average number of part-time
drilling reservists declined by about 6 percent from about 746,400 in
fiscal year 2000 to 699,800 in fiscal year 2006. This decline in the
average number of part-time servicemembers may be attributed to many
factors, such as the Navy's restructuring of its force as part of its
Active-Reserve Integration process, which reduced the number of part-
time reservists. Moreover, Army National Guard and Army Reserve
officials attributed the decline in average strength to their
recruiting difficulties.
In addition to the drilling reservists, about 9 percent of reservists
work full-time, and their per capita cost to the federal government
also increased, from about $90,100 in fiscal year 2000 to about
$115,200 in fiscal year 2006, or about 28 percent.[Footnote 29] Unlike
their part-time counterparts, the full-time reservists' average
strength increased by about 9 percent during this time period,
increasing from about 64,500 in fiscal year 2000 to 70,300 in fiscal
year 2006.[Footnote 30] Full-time reservists are eligible to receive
the same compensation as active duty servicemembers, whose per capita
cost for compensation was about $126,200 in fiscal year 2006. Figure 5
shows the trend in per capita costs for part-time reservists, full-time
reservists, and active duty servicemembers from fiscal year 2000
through fiscal year 2006. Although full-time reservists are eligible to
receive the same compensation as active duty service members, the per
capita cost for compensation presented here is less than the per capita
cost for an active duty servicemember. This is because some costs were
not associated with the full-time reservists, such as accrual costs for
veterans' benefits or costs for installation-based benefits, such as
exchanges and family support programs.
Figure 5: Trend in Per Capita Costs for Part-Time Reservists, Full-Time
Reservists, and Active Duty Servicemembers, Fiscal Years 2000 through
2006:
[See PDF for image]
Source: GAO.
[End of figure]
DOD Does Not Know the Extent to Which Its Mix of Reserve Compensation
Is Meeting Its Human Capital Goals:
DOD and Congress have reacted to the current environment of increased
mobilizations and recruiting difficulties by adding to reservists'
compensation. However, these efforts have been done in a piecemeal
fashion that has shifted the mix of reserve compensation toward more
deferred benefits, even though this may not be the most efficient
allocation to enable DOD to meet its recruiting and retention human
capital goals. Significant increases in the frequency and length of
mobilizations to Iraq and Afghanistan have led to family separations
for longer periods and interruptions in reservists' civilian careers.
In recent years, Congress and DOD have added benefits and pays to
address reserve component recruiting problems. For example, the reserve
incentive program, which primarily provides discretionary cash bonuses
for enlistment and reenlistment, increased more than 1000 percent from
fiscal year 2000 to fiscal year 2006. According to service officials,
this increase was to address potential recruiting shortfalls.
The resulting complex accumulation of pays and benefits has shifted the
mix of reserve compensation toward deferred compensation--that is, the
promise of future compensation like retirement pay and health care.
Figure 6 shows that deferred compensation increased from 12 percent of
total reserve compensation in fiscal year 2000 to 28 percent in fiscal
year 2006. Deferred compensation affects the current cost of
compensation because funds must be set aside today to provide these
benefits in the future, over the reservist's lifetime.
Figure 6: Allocation of Reserve Compensation to Cash, Noncash, and
Deferred in Fiscal Years 2000 and 2006:
[See PDF for image]
Source: GAO.
[End of figure]
While DOD and Congress have added pays and benefits over the past 6
years, it is questionable whether DOD and Congress adequately
considered the appropriateness of the changes, including how the
changes compared to compensation in the civilian sector, what the
efficiency and return of these changes would be in terms of meeting the
department's human capital goals of recruiting and retention, or
whether the compensation changes were affordable and sustainable over
the long-term. DOD defines efficiency of its compensation system as
paying no higher or lower than necessary to fulfill the basic objective
of attracting, retaining, and motivating the kinds and numbers of
servicemembers needed.[Footnote 31] However, this increase in deferred
compensation may not necessarily provide the most efficient allocation
or the best return on the compensation investment. In fact, DOD does
not know the most efficient allocation of compensation needed to meet
its recruiting and retention goals because it has not evaluated reserve
compensation to determine the appropriate mix of compensation to
attract and retain sufficient numbers of qualified servicemembers.
Although the efficiency of noncash and deferred compensation is
difficult to assess because the value servicemembers place on them is
highly individualized, studies indicate cash compensation is not only
preferred to noncash and deferred compensation, but it is also a more
efficient recruiting and retention tool for active duty servicemembers.
In our 2005 report on active duty compensation, we stated that it is
generally accepted that some deferred benefits, such as retirement, are
not valued as highly by servicemembers as current cash
compensation.[Footnote 32] Cash pay today is a far more efficient tool
than future cash or benefits for the recruiting and retention of active
duty servicemembers. For example, a study assessing the military
drawdown in the early 1990s found that when active duty servicemembers
were offered a choice of lump-sum cash payments or annuities, a vast
majority selected the lump-sum payment, even though it had considerably
less net present value.[Footnote 33] This preference for cash
compensation has a profound impact on the efficiency of DOD's
compensation system, especially considering that less than one in four
part-time reservists will receive these costly deferred
benefits.[Footnote 34] More specifically, about 24 percent of those who
join the reserve and Guard will ultimately earn nondisability
retirement pay and health care for life. Typically, deferred and
noncash compensation is offered across the board, which limits the
department's flexibility to offer incentives, target servicemembers, or
turn on and off compensation as it is needed to recruit and retain
servicemembers. Moreover, these changes may not be sustainable over the
long-term. Some of the noncash and deferred compensation that have been
added in response to the department's recruiting problems are, in fact,
inflexible benefits and long-term costs that the department will find
difficult to stop providing, such as health care for reservists.
DOD Has Not Established a Compensation Strategy and Performance
Measures to Gauge Efficiency of Reserve Compensation:
DOD is unable to gauge the efficiency of the mix of reserve
compensation and its compensation tools because it has not established
an overall compensation strategy or performance measures.[Footnote 35]
We have previously found that programs such as compensation systems
need performance measures and goals to guide decision makers and
program policy.[Footnote 36] Moreover, DOD's Personnel and Readiness
strategic plan states the importance for DOD to identify requirements
and tailor compensation and other programs to achieve objectives and
continuously review personnel management.[Footnote 37] In addition, we
have also reported that it is necessary for an agency to monitor and
evaluate its progress toward its human capital goals and the
contribution that human capital outcomes have made toward achieving
program results.[Footnote 38]
The lack of a strategy to guide compensation policy is a long-standing
problem faced by DOD. We identified the lack of explicit compensation
principles in 1979 and again in 2005 in our reports on active duty
compensation.[Footnote 39] Our past reports pointed out that DOD lacked
explicit compensation principles, which creates challenges in making
major changes to compensation. Moreover, DOD does not have performance
measures to gauge the efficiency of its compensation system or the
various compensation tools. Without performance measures, DOD does not
know which of its compensation tools--cash, noncash, or deferred--works
best at recruiting and retaining servicemembers, and it does not know
the most effective, efficient mix of compensation.
Determining the return on investment for compensation and the impact of
compensation on recruiting and retention is not an easy task and should
be approached with caution. DOD and service officials often point to
meeting end strength or recruiting and retention goals as evidence that
compensation is appropriate or working. Although end strength is an
important indicator, we do not believe it is sufficient alone. Meeting
recruiting and retention goals does not indicate if the compensation
system is efficient or yielding the best return on the department's
investment. In fact, numerous other factors, such as the economy,
ongoing contingency operations, and DOD's own recruiting and
advertising program also influence the department's ability to recruit
and retain servicemembers.[Footnote 40] As a result, DOD does not know
if the additions to the compensation system--which are becoming
increasingly costly--are appropriate to enable the reserve components
to recruit and retain a high-quality workforce in sufficient numbers
and that the federal government has the best return on investment.
Until DOD establishes a strategy for determining the best mix of cash,
noncash, and deferred compensation and develops performance measures to
evaluate the efficiency of compensation tools, DOD and Congress will be
unable to make informed decisions about which compensation tools will
provide the best return on investment, be sustainable in the long term,
and be effective in recruiting and retaining the future reserve force.
DOD Does Not Have Transparency over Total Costs of Reserve
Compensation:
Decision makers in Congress and DOD do not have adequate transparency
over total costs for providing reserve compensation--including the
allocation of costs to cash, noncash, and deferred compensation and the
cost of mobilized reservists. Good business practices require adequate
transparency over investments of resources, especially in times of
fiscal balance constraints. However, today there is no single source
where decision makers can go to see all the costs of reserve
compensation. In addition, the cost of mobilized reservists is also not
transparent.
Part of the lack of transparency is due to the fact that about a
quarter of the costs of reserve compensation are found outside the
military personnel appropriation for DOD. In fact, costs are located
within three federal agencies--DOD, Department of Veterans Affairs, and
Department of Treasury--depending on the type of compensation and the
status of the reservists--active reserve or mobilized. Furthermore,
within DOD, compensation costs are found in four different budgets--the
reserve components' military personnel, active components' military
personnel, active components' operation and maintenance, and the
Defense Health Program. Most of the cash costs--such as basic pay,
allowances, and special pays and incentives--are located in either the
reserve or active military personnel budgets, depending on whether the
reservist is mobilized.[Footnote 41] In addition, the reserve military
personnel budgets combine some cash costs. For example, pays and
allowances includes such costs as retired pay accrual, basic allowance
for subsistence, basic allowance for housing, and special and incentive
pay as authorized. Furthermore, some noncash costs are located in the
active operation and maintenance budget and active and reserve military
personnel budgets.[Footnote 42] Some of these noncash costs, such as
those for commissary and morale, welfare, and recreation facility use
are not broken out by active and reserve costs because usage of these
facilities is open to both components. Moreover, deferred costs for
health care for the Medicare-eligible retirees and their dependents are
found in the Defense Health Program budget, while some of the costs for
concurrent receipt of disability retirement are found in the Treasury
budget.[Footnote 43]
Transparency over compensation costs is further limited when reservists
are mobilized because mobilized reservists are paid from active duty
budgets. Moreover, compensation costs for mobilized reservists are
difficult to determine within the active components budgets, in part
because they are paid out of the supplemental funding the active
components receive for the global war on terrorism. The absence of
information about the compensation costs of mobilized reservists
further dilutes decision makers' ability to see the full picture of the
costs of reserve compensation to the federal government. In addition,
as mobilizations are expected to become a regular part of reservists'
careers, these costs will become a part of doing business for the
reserves, which increases the importance of being able to identify
them.[Footnote 44]
In our report on reserve compensation that we issued today,[Footnote
45] we are making recommendations to assess the appropriateness of the
reserve compensation system and to improve transparency over total
reserve compensation costs. Our recommendations are that DOD (1)
establish a clear compensation strategy that includes performance
measures and (2) compile total costs to provide reserve compensation
for part-time, full-time, and mobilized reservists and communicate
these costs as well as the allocation of these costs among cash,
noncash, and deferred compensation to decision makers within the
administration and Congress.
In commenting on a draft of our report on reserve compensation, DOD
partially concurred with our recommendations. In response to our
specific recommendation to develop a compensation strategy and
performance measures, the department partially concurred and described
several steps that they had taken including chartering an independent
commission to review military compensation. In addition, the department
noted that it has primarily sought cash compensation in recent years,
and that many of the increases in deferred compensation were not sought
by DOD. In response to our recommendation to improve transparency, DOD
stated that the Office of Management and Budget could more
appropriately address this recommendation because it has visibility
over all parts of the budget. We continue to believe that DOD needs an
explicit compensation strategy to underpin its business case to
decision makers, and transparent information that compiles the total
costs of compensation as part of the military budget submission.
Conclusions:
A general reassessment of the Guard and reserves' business model and
human capital strategies is critical to enable DOD to continue to
achieve its goal of having a sustainable all-volunteer force. The
current business model that was developed under Cold War assumptions is
not well aligned with the Guard and reserves' new operational role. The
Commission has the opportunity to take a comprehensive look at how DOD
and Congress need to work together to craft a business model for the
reserve component that addresses both current and future challenges. A
revised business model for the reserve component should include
integrated policies, procedures, and business systems for recruiting
and retaining personnel; facilitation of individuals' movement between
reserve and active duty status; and compensation of personnel with a
combination of cash and benefits that best supports the achievement of
human capital goals. In the past, DOD and Congress have reacted to the
reserves' new operational role by adding compensation without adequate
consideration of how additional compensation and benefits compare with
civilian sector compensation; whether they are appropriate, affordable,
and sustainable over the long-term; or their return on investment in
terms of recruiting and retention. The Commission has the opportunity
to consider how DOD should construct a pay and compensation strategy
that addresses these challenges to ensure that DOD uses its
compensation resources more efficiently which ultimately would improve
DOD's ability to recruit a highly qualified force in sufficient
numbers. Addressing these challenges as part of a comprehensive
reassessment of the reserve component's business model is especially
important in light of existing budgetary pressures. Without a
sustainable business model, DOD may not be well positioned to support
operations at home and abroad and achieve its long-term goals of
transformation and modernization.
Mr. Chairman and Members of the Commission, this concludes my prepared
statement. I would be happy to answer any questions you may have at
this time.
For further information regarding this testimony, please contact Janet
A. St. Laurent at (202) 512-4402 or stlaurentj@gao.gov. Contact points
for our Offices of Congressional Relations and Public Affairs may be
found on the last page of this statement. Individuals who made key
contributions to this testimony are listed in enclosure I.
[End of section]
Enclosure I: GAO Contact and Staff Acknowledgments:
GAO Contact:
Janet A. St. Laurent, (202) 512-4402 or stlaurentj@gao.gov:
Acknowledgments:
In addition to the contact named above, Derek B. Stewart, Director;
John H. Pendleton, Acting Director; Margaret G. Morgan, Assistant
Director; David E. Moser, Assistant Director; Lori A. Atkinson; Alissa
H. Czyz; Linda S. Keefer; James P. Klein; Susan C. Langley; Tom C.
Murphy; Hilary L. Murrish; Erin S. Noel; Kristy C. Williams; Steve
Woods; and Suzanne K. Wren made key contributions to this statement.
[End of section]
Related GAO Products:
Military Personnel: DOD Needs to Establish a Strategy and Improve
Transparency over Reserve and National Guard Compensation to Manage
Significant Growth in Cost. GAO-07-828. Washington, D.C.: June 20,
2007.
Military Base Closures: Management Strategy Needed to Mitigate
Challenges and Improve Communication to Help Ensure Timely
Implementation of Air National Guard Recommendations. GAO-07-641.
Washington, D.C.: May 16, 2007.
High-Risk Series: An Update. GAO-07-310. Washington, D.C.: January
2007.
Military Personnel: Additional Actions Needed To Improve Oversight Of
Reserve Employment Issues. GAO-07-259. Washington, D.C.: February 8,
2007.
Military Personnel: Reserve Components Need Guidance to Accurately and
Consistently Account for Volunteers on Active Duty for Operational
Support. GAO-07-93. Washington, D.C.: October 31, 2006.
Reserve Forces: Actions Needed to Identify National Guard Domestic
Equipment. GAO-07-60. Washington, D.C.: January 2007.
Military Recruiting: DOD and Services Need Better Data to Enhance
Visibility over Recruiter Irregularities. GAO-06-846. Washington, D.C.:
August 8, 2006.
Reserve Forces: Army National Guard's Role, Organization, and Equipment
Need to be Reexamined. GAO-06-170T. Washington, D.C.: October 20, 2005.
Military Personnel: DOD Needs Action Plan to Address Enlisted Personnel
Recruitment and Retention Challenges. GAO-06-134. Washington, D.C.:
November 17, 2005.
Force Structure: Assessments of Navy Reserve Manpower Requirements Need
to Consider the Most Cost-effective Mix of Active and Reserve Manpower
to Meet Mission Needs. GAO-06-125. Washington, D.C.: October 18, 2005.
Reserve Forces: Plans Needed to Improve Army National Guard Equipment
Readiness and Better Integrate Guard into Army Force Transformation
Initiatives. GAO-06-111. Washington, D.C.: October 4, 2005.
Military Personnel: Federal Management of Servicemember Employment
Rights Can Be Further Improved. GAO-06-60. Washington, D.C.: October
19, 2005.
Reserve Forces: An Integrated Plan Is Needed to Address Army Reserve
Personnel and Equipment Shortages. GAO-05-660. Washington, D.C.: July
12, 2005.
21st Century Challenges: Reexamining the Base of the Federal
Government. GAO-05-325SP. Washington, D.C.: 2005.
Military Personnel: A Strategic Approach Is Needed to Address Long-term
Guard and Reserve Force Availability. GAO-05-285T. Washington, D.C.:
February 2, 2005.
DOD Systems Modernization: Management of Integrated Military Human
Capital Program Needs Additional Improvements. GAO-05-189. Washington,
D.C.: February 11, 2005.
Reserve Forces: Actions Needed to Better Prepare the National Guard for
Future Overseas and Domestic Missions. GAO-05-21. Washington D.C.:
November 10, 2004.
Military Personnel: DOD Needs to Address Long-term Reserve Force
Availability and Related Mobilization and Demobilization Issues. GAO-
04-1031. Washington, D.C.: September 15, 2004.
Military Pay: Army Reserve Soldiers Mobilized to Active Duty
Experienced Significant Pay Problems. GAO-04-911. Washington, D.C.:
August 20, 2004.
Reserve Forces: Observations on Recent National Guard Use in Overseas
and Homeland Missions and Future Challenges. GAO-04-670T. Washington,
D.C.: April 29, 2004.
Military Personnel: DOD Actions Needed to Improve the Efficiency of
Mobilizations for Reserve Forces.GAO-03-921. Washington, D.C.: August
21, 2003.
Reserve Forces: DOD Actions Needed to Better Manage Relations between
Reservists and Their Employers. GAO-02-608. Washington, D.C.: June 13,
2002.
FOOTNOTES
[1] GAO, Military Personnel: DOD Needs to Establish a Strategy and
Improve Transparency over Reserve and National Guard Compensation to
Manage Significant Growth in Cost, GAO-07-828 (Washington, D.C.: June
20, 2007).
[2] GAO, 21st Century Challenges: Reexamining the Base of the Federal
Government, GAO-05-325SP (Washington, D.C.: Feb. 1, 2005).
[3] GAO, High-Risk Series: An Update GAO-07-310 (Washington, D.C.: Jan.
31, 2007). DOD has sole responsibility for eight high risk areas and
shares responsibility for seven other areas with other federal
organizations.
[4] 10 U.S.C. §12302.
[5] As we reported in 2005 (GAO-05-352T), the Congressional Budget
Office has also produced long-term budget simulations that show over
the long-term the nation faces a large and growing structural deficit.
[6] GAO, Reserve Forces: Actions Needed to Better Prepare the National
Guard for Future Overseas and Domestic Missions, GAO-05-21 (Washington,
D.C.: Nov. 10, 2004).
[7] GAO, High-Risk Series: An Update GAO-07-310 (Washington, D.C.: Jan.
31, 2007).
[8] GAO-07-310.
[9] GAO, 21st Century Challenges: Reexamining the Base of the Federal
Government, GAO-05-325SP (Washington, D.C.: Feb. 1, 2005).
[10] GAO, Reserve Forces: Army National Guard and Army Reserve
Readiness for 21st Century Challenges, GAO-06-1109T (Washington, D.C.:
Sept. 21, 2006).
[11] GAO, Reserve Forces: An Integrated Plan is Needed to Address Army
Reserve Personnel and Equipment Shortages, GAO-05-660 (Washington,
D.C.: July 12, 2005).
[12] GAO, Hurricane Katrina: Better Plans and Exercises Needed to Guide
the Military's Response to Catastrophic Natural Disasters, GAO-06-643
(Washington, D.C.: May 15, 2006).
[13] GAO, Reserve Forces: Actions Needed to Identify National Guard
Domestic Equipment Requirements and Readiness, GAO-07-60 (Washington,
D.C.: Jan. 26, 2007).
[14] GAO, Military Personnel: DOD Needs Action Plan to Address Enlisted
Personnel Recruitment and Retention Challenges, GAO-06-134 (Washington,
D.C.: Nov. 17, 2005).
[15] GAO, Military Personnel: DOD Actions Needed to Improve the
Efficiency of Mobilizations for Reserve Forces, GAO-03-921 (Washington,
D.C.: Aug. 21 2003).
[16] GAO-03-921.
[17] GAO, Reserve Forces: Army National Guard and Army Reserve
Readiness for 21st Century Challenges, GAO-06-1109T (Washington, D.C.:
Sept. 21, 2006); GAO, Reserve Forces: Observations on Recent National
Guard Use in Overseas and Homeland Missions and Future Challenges, GAO-
04-670T (Washington, D.C.: April. 29, 2004).
[18] Services can, at their discretion, exclude individual skill
training required for deployment and post-mobilization leave activities
from the 1-year activation period.
[19] GAO, Military Personnel: Additional Actions Needed To Improve
Oversight Of Reserve Employment Issues, GAO-07-259 (Washington, D.C.:
Feb. 8, 2007).
[20] GAO, Army National Guard: Inefficient, Error-Prone Process Results
in Travel Reimbursement Problems for Mobilized Soldiers, GAO-05-79
(Washington D.C.: Jan. 31, 2005).
[21] GAO, Military Pay: Army Reserve Soldiers Mobilized to Active Duty
Experienced Significant Pay Problems, GAO-04-911 (Washington, D.C.:
Aug. 20, 2004), and Military Pay: Army National Guard Personnel
Mobilized to Active Duty Experienced Significant Pay Problems, GAO-04-
89 (Washington, D.C.: Nov. 13, 2003).
[22] See, for example, GAO, DOD Systems Modernization: Management of
Integrated Military Human Capital Program Needs Additional
Improvements, GAO-05-189 (Washington, D.C.: Feb. 11, 2005); Defense
Management: Foundational Steps Being Taken to Manage DOD Business
Systems Modernization, but Much Remains to be Accomplished to Effect
True Business Transformation, GAO-06-234T (Washington, D.C.: Nov. 9,
2005); and Defense Business Transformation: A Comprehensive Plan,
Integrated Efforts and Sustained Leadership Are Needed to Assure
Success, GAO-07-229T (Washington, D.C.: Nov. 16, 2006).
[23] Veterans' benefits include health care, compensation and pension,
education and training, vocational rehabilitation, guaranty home loans,
life insurance, burial benefits, and dependents' and survivors'
benefits. Reservists who have served honorably on active duty establish
veteran status and may therefore be eligible for veterans' benefits
including health care and monthly compensation, depending on the length
of active military service and other eligibility factors. In addition,
reservists who are never called to active duty may qualify for some
veterans' benefits such as education, home loan guaranty, vocational
rehabilitation, disability pension, and life insurance. In the absence
of a formal actuarial model, we were unable to determine the deferred
or accrual costs for reservists' benefits provided by the Department of
Veterans Affairs. Furthermore, the Veterans Affairs budget does not
distinguish between active and reserve cost, which prevented us from
associating current noncash costs for programs such as vocational
rehabilitation and disability pension with reserve compensation. In
addition, we decided to associate all installation-based noncash
benefits (such as commissaries and morale, welfare, and recreation
centers) with the active components compensation costs although
reservists are eligible to take advantage of those benefits. As a
result, our compensation cost for reserve and guard personnel is likely
understated.
[24] In fiscal year 2001, Congress expanded retiree health care
coverage to supplement Medicare.
[25] GAO, DOD's 21st Century Health Care Spending Challenges,
presentation for the Task Force on the Future of Military Health Care,
GAO-07-766CG (Washington, D.C.: April 18, 2007).
[26] In the National Defense Authorization Act for Fiscal Year 2004,
Congress established TRICARE health care coverage for unemployed
reservists or those ineligible for health care coverage from their
civilian employer. However, this provision was not implemented by DOD.
The Ronald W. Reagan National Defense Authorization Act for Fiscal Year
2005 included provisions for reservists to receive 1 year of TRICARE
standard for each period of 90 consecutive days served in a contingency
operation given that the reservists signed a commitment to serve
continuously in the Selected Reserve during the covered period. When
implemented by the DOD, the program was called TRICARE Reserve Select.
The National Defense Authorization Act for Fiscal Year 2006 enhanced
this coverage by creating a three-tier system of eligibility, based on
the percentage of co-pay. The John Warner National Defense
Authorization Act for Fiscal Year 2007, further expanded the program to
give access to the benefit to all Selected Reservists and eliminated
the tiered eligibility system. TRICARE Reserve Select is scheduled to
be implemented in October 2007.
[27] Part-time drilling reservists drill 1 weekend a month and
participate in active duty training for 2 weeks a year. These personnel
are referred to as pay groups A and B in the services budget
justification books, and they also may participate in special and
school training, such as operational, refresher, and proficiency
training. In addition, we included pay groups F and P in our part-time
analysis.
[28] This compensation does not include all of the costs required to
support additional servicemembers, because it does not include those
costs associated with recruiting and training personnel.
[29] Full-time reserve and National Guard personnel are referred to as
"Administration and Support" in the budget justification books, but are
often referred to as active guard and reserve (AGR) or full-time
support (FTS), depending on service culture. These personnel are called
to active duty for reasons including organizing, administering,
recruiting, instructing, and training reserve component personnel, and
special work such as security.
[30] The percentage of full-time reservists varies by component. For
example, in fiscal year 2006 the Navy Reserve and the Air National
Guard had the highest percentage of full-time reservists, about 12 and
18 percent, respectively while the Air Force Reserve and Marine Corps
Reserve had the lowest percentage, about 3 and 6 percent, respectively.
[31] Department of Defense, Office of the Secretary of Defense,
Military Compensation Background Papers: Compensation Elements and
Related Manpower Cost Items, Their Purpose and Legislative Backgrounds,
6th ed. (Washington, D.C.: April 2005).
[32] GAO, 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).
[33] John T. Warner and Saul Pleeter, "The Personal Discount Rate:
Evidence from Military Downsizing Programs," The American Economic
Review (March 2001).
[34] GAO, Military Personnel: DOD Needs More Data Before It Can
Determine if Costly Changes to the Reserve Retirement System Are
Warranted, GAO-04-1005 (Washington, D.C.: Sept. 15, 2004).
[35] Department of Defense, Office of the Secretary of Defense,
Military Compensation Background Papers: Compensation Elements and
Related Manpower Cost Items, Their Purpose and Legislative Backgrounds,
6th ed. (Washington, D.C.: April 2005).
[36] GAO, A Model of Strategic Human Capital Management, GAO-02-373SP
(Washington, D.C.: Mar. 15, 2002).
[37] Under Secretary of Defense for Personnel and Readiness' (OUSD--
P&R), Strategic Plan, FY2006-2011 (April 18, 2006).
[38] GAO, Human Capital: Key Principles for Effective Strategic
Workforce Planning, GAO-04-39 (Washington, D.C.: Dec. 11, 2003).
[39] GAO, 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); The Congress Should Act to Establish
Military Compensation Principles, GAO/FPCD-79-11 (Washington, D.C.: May
9, 1979).
[40] DOD, 9th Quadrennial Review of Military Compensation (Volume I;
May 17, 2002); Commission on the National Guard and Reserves,
Strengthening America's Defenses in the New Security Environment (March
1, 2007); GAO, Military Recruiting: DOD Needs to Establish Objectives
and Measures to Better Evaluate Advertising's Effectiveness, GAO-03-
1005 (Sept. 19, 2003).
[41] The military personnel budgets include such things as basic pay,
allowances for housing and subsistence, special and incentive pays,
other allowances, and retired pay accrual. The pay and benefits for
mobilized reservists are located in the active military personnel
budget.
[42] The operation and maintenance budget includes costs for morale,
welfare, and recreation programs and commissaries. The Veteran's
Affairs budget includes costs for the Home Loan Guaranty program and
disability compensation. The military personnel budgets include costs
for noncash items such as death gratuities and clothing and travel
allowances.
[43] The Health Affairs budget includes costs for all health care
benefits except for health care for retirees younger than age 65. The
Treasury budget includes contributions to retirement pay accrual to
offset concurrent receipts.
[44] Secretary of Defense Memorandum for Secretaries of the Military
Departments, Chairman of the Joint Chiefs of Staff, Under Secretaries
of Defense, "Utilization of the Total Force" (Jan. 19, 2007). This memo
states that the planning objective for involuntary mobilization for the
Guard and reserves will remain a 1-year mobilized to 5-year demobilized
ratio. However, today's global demands will require a number of
selected National Guard and reserve units to be remobilized sooner than
this standard.
[45] GAO-07-828.
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