Is a Civilian Salary System Right for the Military?

Military Transition

United States Army photo

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That is a question the 13th Quadrennial Review of Military Compensation (QRMC) Board will ask when it convenes later this year. It will look at the pros and cons of converting from the present system of a monthly base pay predicated on years of service and grade, along with tax-free allowances, to a single civilian-like salary system.

Back in December, Congress directed the Department of Defense (DoD) to prepare a plan that, if warranted, would transition the military to a salary pay system effective January 1, 2018. In a two-page initial assessment and progress report to the Senate and House Armed Services Committees, Senior Defense Executive A.M. Kurta explained such a transition “would be a change of historic proportions” requiring “significant additional study [of] second and third order effects, the potential risk to readiness, if any, and the effects on DoD’s ability to recruit and retain” (an all-volunteer force).

Back in May, I wrote on the New Blended Retirement System that goes into effect in 2018. Now the pay system is under the microscope for obviously the same reason – to save money. But will it actually save money?

Jeri Busch, Director of Military Compensation Policy said “We do believe, as of today, that we still have a very robust compensation package that compares very favorably to the private sector. As of today, it meets our needs in helping us recruit and retain the talent we need.”

In a comparison with the private civilian sector, the DoD does not see a gap between comparable jobs in civilian and the current military pay and allowance system, exclusive of bonuses and special pays needed to acquire and keep high demand skills required for certain jobs. That part most likely will still need to continue regardless of the pay system used in order to get the talent required; many of these jobs don’t exist in the civilian world.

The Military-Civilian Pay Gap

To come up with whether a pay gap exists or not, the DoD uses a 15-year old formula from the 9th QRMC called the Regular Military Compensation or RMC that uses base pay, tax-free allowances, and a tax-free value assigned to the allowances. After calculating the factors if the RMC matches or exceeds the 70th percentile of private sector wages for like positions, the level of pay is considered adequate.

But in today’s economic situation, is the 70th percentile still an accurate benchmark to use? That question is currently being worked on by a think tank at the Rand Corporation. In a military pay issue review published in April, analysts concluded that “service life makes comparisons to the private sector imperfect.” They went on to say, “the conditions of military service are frequently much more arduous than those of civilian employment, even in peacetime, for families as well as military personnel themselves.”

This factor alone is sometimes used as a rationale for military compensation being higher than it otherwise might be. For example, in 2012, the RMC was at 83% for officers and 90% for enlisted.

So will the salary system be more comparable to the 70% RMC target or will it reflect a percentile closer to the 2012 RMC or today’s level? Or will the salary system be based on something completely new?

Regardless, it will be interesting to watch and see what the recommendation will be from the QRMC and what Congress does with it. There are a lot of moving parts to consider to “a change of historic proportions.”

Kness retired in November 2007 as a Senior Noncommissioned Officer after serving 36 years of service with the Minnesota Army National Guard of which 32 of those years were in a full-time status along with being a traditional guardsman. Kness takes pride in being able to still help veterans, military members, and families through his Veteran School Benefits website as they struggle through veteran and dependent education issues.