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Pacific edition, Saturday, May 8, 2010

Every witness before a Senate subcommittee hearing last week on military compensation — all experts on service pay and benefits — called for Congress to end its 12-year run of voting for annual military pay raises that exceed wage growth in the private sector.

No witness suggested that future raises each January shouldn’t match annual wage gains for private sector workers as measured by the government Employment Cost Index (ECI).

But with personnel costs soaring to sustain a quality all-volunteer force in its ninth year war, lawmakers like Sen. James Webb, D-Va., chairman of the Senate armed services personnel subcommittee, are investigating ways to make military compensation more efficient.

A common theme raised at this hearing was the need for more targeted pays, such as bonuses and incentive pays, versus continuing a string of across-the-board raises, which were deemed inefficient and a catalyst for driving up basic pay and retirement costs.

Webb opened the hearing by saying the cost of military personnel — including pay, allowances, non-cash benefits like health care and deferred benefits like retirement — "continues to rise at disturbing rates."

But he adjourned giving assurances "we are very committed to making sure our military people are well compensated [and that] we retain the quality and the expertise" to keep this "the finest military in the world."

Webb and colleagues heard three outside pay analysts and a DOD policymaker suggest that Congress not continue to push for across-the-board raises in excess of private sector wage growth because it only aggravates the challenge of soaring personnel costs.

William J. Carr, deputy undersecretary of defense for military personnel policy, noted that to match civilian wage growth as measured by the ECI, the Obama administration proposes a 1.4 percent pay raise for 2011. Service associations want that raise bumped, again by half of a percentage point, to 1.9 percent.

Webb didn’t tip his hand on what he will support, but his witnesses this day said the extra half percent in basic pay would add $350 million to personnel costs in fiscal 2011 and $2.4 billion over five years. A more efficient approach, senators were told, would be to add a more modest sum to reenlistment bonuses for members having job skills that the services most need.

"Unlike pay raises, bonuses do not compound from year to year or affect retirement pay and other elements of cash compensation," said Carla Tighe Murray, a senior analyst for the Congressional Budget Office.

Congress has been backing basic pay raises above the ECI for the past decade to narrow a perceived gap with private sector pay. But CBO’s Murray said the pay gap no longer exists if pay comparisons take into account gains in military allowances over a decade.

Brenda S. Farrell, the Government Accountability Office’s director for defense capabilities and management, led a team of analysts who reported to Congress last month on the adequacy of military compensation. Farrell testified that service pay and benefits now "are generous" compared to compensation packages offered in the private sector.

She added that across-the-board pay raises "may not be seen as the most efficient recruiting and retention mechanism." She called targeted bonuses "more appropriate" to keep sufficient personnel in critical skills.

GAO had reviewed recent military compensation studies by CBO, RAND and by the Center for Naval Analyses, which did important work for the Pentagon’s 10th Quadrennial Review of Military Compensation. Farrell said comparing military and civilian compensation is always a challenge given the unique factors of service life and difficulty of comparing benefits like health care or deferred compensation like retirement.

But GAO agreed with the 10th QRMC that the Department of Defense should begin to weigh the value of retirement and health care compensation in making pay comparisons with other Americans.

On this point, DOD’s Carr disagreed, saying military people have become accustomed to comparing Regular Military Compensation (RMC) — basic pay, housing and food allowances plus the federal tax advantage on those tax-free allowances — with civilian wages. RMC now exceeds wage levels for 70 percent of civilian workers of similar age and work experience. James Hosek, a RAND expert on military pay, suggested with unemployment high and the U.S. economy climbing out of a deep recession, Congress should feel comfortable having the services rely more heavily on targeted incentives rather than an enhanced across-the-board January raise.

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