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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.
But with personnel costs soaring to sustain a quality all-volunteer force in its ninth-year war, lawmakers including 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 beefier "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 such as health care and deferred benefits such as 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."
In between, Webb and colleagues heard from three outside pay analysts and a Defense Department policymaker suggesting 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 Carr, deputy under secretary of defense for military personnel policy, noted that to match civilian wage growth as measured by the Employment Cost Index, 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 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, and the benefit for recruiting and retention would be small. A more efficient approach, senators were told, would be to add a more modest sum to re-enlistment bonuses for members having job skills that the services most need.
"Unlike (basic) 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.
Carr noted in his written testimony that the extra $350 million some lawmakers want to pump into basic pay in January could be used instead to pay $30,000 bonuses to 11,000 more personnel with critically needed skills.
Congress has been backing basic pay raises above the Employment Cost Index for the past decade to narrow a perceived gap with private sector pay. But the Congressional Budget Office's Murray said the pay gap no longer exists if pay comparisons take into account gains in military allowances over a decade.
"Using a broader measure, one that includes housing and subsistence allowances, indicates that the cumulative increase in military compensation has exceeded the cumulative increase in civilian wages and salaries by 11 percent since 1982," Murray testified. "That comparison does not include non-cash and deferred compensation which would probably add to the cumulative difference" to service members' favor.
Brenda 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.
The Government Accountability Office had reviewed recent military compensation studies by the Congressional Budget Office, 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 such as health care or deferred compensation like retirement.
But the Government Accountability Office agreed with the 10th Quadrennial Review 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, the Defense Department's Carr disagreed, saying military people have become accustomed to comparing Regular Military Compensation -- basic pay, housing and food allowances plus the federal tax advantage on those tax-free allowances -- with civilian wages. Regular Military Compensation now exceeds wage levels for 70 percent of civilian workers of similar age and work experience.
But Farrell said defining and comparing military compensation more broadly could help recruiting and retention. When this yardstick is used, military compensation today exceeds compensation packages for 80 percent of peers in the U.S. work force.
"We firmly believe the total package should be included," Farrell said.
