Trends in military compensation: A chartbook

Abstract

This chartbook from the Bipartisan Policy Center (BPC) and the American Enterprise Institute (AEI) examines how spending on the all-volunteer force has changed over time. With near-sequestration levels of defense spending likely for the foreseeable future, policymakers face tough budgetary and strategic choices regarding military personnel compensation, force structure, and readiness. We intend for this project to help decision makers and the public better understand the context underpinning this debate.

Methodology

Throughout this chartbook, compensation is used as an umbrella term to include cash compensation such as basic pay, in-kind benefits such as health care, and deferred benefits such as retirement pay. All figures are in 2012 dollars and do not include Overseas Contingency Operations (OCO) or personnel funded with OCO, unless otherwise noted. Pay and pay-like compensation includes both basic pay for service members and additional types of compensation that often appear in service members’ paychecks, including incentive or hazard pay, housing and subsistence allowances, transportation benefits, and some education benefits not funded by the Department of Defense Education Activity. This category also includes some administrative costs.

Health care spending includes Tricare costs for both active duty service members and working-age (under 65) retirees. These figures do not include the cost of care provided by the Veterans Health Administration. Retirement costs include contributions to the Military Retirement Fund and the Medicare-Eligible Retiree Health Care Fund and represent current accruals for benefits to be paid during the retirement of current service members.

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In real terms, compensation per active duty service member increased by 42 percent from 2001 to 2012.

About 40 percent of service member compensation is in the form of benefits.

Retirement and health care benefits propelled rising costs over the last decade.

Additional pay-like compensation rose twice as fast as basic pay from 2001 to 2012.

In 2012, military personnel costs represented about one-third of total Pentagon spending.

But that one-third of the defense budget funded almost 30 percent fewer active duty service members than in 1980.

While personnel expenses have stayed roughly constant as a share of the defense budget, that share has funded a shrinking force.

This means more money is paying for fewer service members.

Military personnel costs are not limited to the defense budget. Pension costs outside of the Pentagon’s budget are a majority of pension accruals.

The bottom line

While the real cost of military compensation per active duty service member rose by 42 percent from 2001 to 2012, the active duty force grew by less than 1 percent. The Pentagon will increasingly need to take great care in balancing all the priorities of military strength. Unless modernization of compensation and benefits comes soon, the only way to meet the spending caps set in the Budget Control Act of 2011 will be to continue to shrink the armed forces or cut other essential portions of the defense budget. The costs of inaction will harm future service members and their families by depriving them of the world’s best training, equipment, and leadership.

Download the PDF here.

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