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Report: Time is right to downsize pay raises

Jul. 30, 2012 - 03:52PM   |   Last Updated: Jul. 30, 2012 - 03:52PM  |  
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In what would be bad news for military wallets, a new report by Rand Corp. says the timing is right to limit the size of military pay raises.

With "extraordinarily high" recruiting and retention and current pay levels that have troops well compensated in comparison to their civilian peers, a Rand Corp. report released Monday says there would be little harm in limiting military pay increases to a level below the average annual growth in private-sector pay.

Smaller military raises are "unlikely to hurt capability and readiness," the report says. "Where needed, bonuses and special pays can be used to manage recruiting and retention and do so more cost-effectively than across-the-board pay actions."

The report is titled, "Should the Increase in Military Pay Be Slowed?" It was prepared for the Defense Department which, not coincidently, is proposing to limit future pay increases beginning in 2015 to only a fraction of the annual increase in private-sector wages.

Rand researchers said that military pay has, in some regards, outperformed private-sector wages in recent years. Since 2000, civilian pay has slightly decreased after adjustment for inflation while military basic pay increased by 13 percent.

The Rand report suggests three options for cutting pay.

A one-time cap that limits the increase in basic pay to half a percentage point less than the average private-sector increase, which would save $5.2 billion over 10 years, the study estimates. If applied to the 2013 raise, this would give service members a 1.2 percent increase on Jan. 1, rather than the 1.7 percent increase included in the Obama administration's defense request. The 1.7 percent hike matches the average private-sector increase last year, as measured by the Labor Department's Employment Cost Index, or ECI.

A one-year freeze, with no increase in basic pay, which would save around $17.7 billion over 10 years, Rand estimates. This would apply only to basic pay rates, and would not eliminate pay increases that come from promotions or for passing longevity steps in the military pay scale.

Capping basic pay raises for four consecutive years at half a percentage point less than private-sector increases, which would save $17.5 billion over five years, the report says.

Pay caps would have a downside, the report acknowledges. In what service members and their families likely would consider an understatement, the report says the military community is "likely to find a decrease in the rate of growth of military pay unwelcome," especially while troops are still in combat.

Pay caps could be "interpreted as a signal of waning support for the war effort and a lack of appreciation for the personal sacrifices of service members and their families," the report said.

In a recent report on long-range defense costs, the nonpartisan Congressional Budget Office predicted that Congress would be unlikely to go along with a Defense Department request to cap future military raises, even if money gets tight.

Rand, however, says that a one-time pay freeze or one-time pay cap has the best chance of passing because they would be viewed as short-term responses to the high unemployment rate in the civilian labor market and an effort to reduce deficit spending.

Longer-term cap caps would be harder to sustain, especially if the civilian job market improved to the point that military recruiting became more difficult and mid-career service members decided to leave the ranks to take civilian jobs.

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