Military compensation ballooning out of control, GAO says

By Karen Rutzick

The military's compensation package may not be sustainable over the long term, according to two government groups.

The Government Accountability Office released a report July 19 that calls on the Pentagon to "reassess the

reasonableness, appropriateness, affordability, and sustainability" of its military compensation system (GAO-05-798). In a public meeting of the Defense Advisory Committee on Military Compensation on Wednesday, a bevy of experts made a similar assessment.

In fiscal 2004, the Pentagon spent about $112,000 on average to compensate active duty officers, which represents a 29 percent increase from 2000, GAO found. The watchdog agency found that health care costs alone increased 69 percent in that time to $23 billion in 2004.

In 2005, the Pentagon created the DACMC to assess the approach the department uses to compensate its personnel. The committee found that costs for health, retirement and incentive benefits are skyrocketing.

GAO pointed to a lack of centralized, transparent information on military compensation costs as the root of inefficient spending.

A single cost number for compensation simply "does not exist," GAO said, forcing auditors to compile a number of figures to create a rough estimate. "Transparency is further hindered by the sheer number and types of pay, benefits and tax preferences" in the system, they said.

For instance, the DACMC presentation on special and incentive pay found there are over 60 different types of pay, like hostile fire and foreign duty pay, most of which "are not structured to motivate personnel to perform." Panelist Patrick Mackin called for the consolidation of special and incentive pay. He said few of these extra compensations are ever eliminated, except for extreme cases like leprosy pay. As a result they are inefficiently piling on.

The GAO report reemphasized an earlier recommendation by the watchdog agency to create a chief management official at the Pentagon.

In its response to the report, Defense officials pointed to their creation of the DACMC as a good step in adding transparency to the system.

However, GAO said, while the DACMC is working on these issues, they are not solved. One of the biggest problems is the system's heavy weighting of compensation toward benefits rather than cash, GAO said. It is substantially off-kilter with private sector compensation systems in that regard.

Compensation in the form of benefits accounted for more than half of annual costs in fiscal 2004, according to the GAO.

In its report on retirement packages, DACMC staff member John Warner suggested that it "might be more effective to put more compensation up front."

One of the most significant compensation costs came when Congress voted in 2000 to enhance retiree benefits to include health care for retirees older than 65 years old and their dependents, GAO wrote.

"This additional benefit came at significant costs, about $6.5 billion accrual funding in fiscal year 2004 alone, and with little evidence of whether, and if so how it contributes to...recruiting and retention," GAO said.

However, both groups acknowledged that Defense is unique because of its indebtedness to members of the armed forces.

The department "believes benefits are central to morale and readiness as well as important in providing members with a quality of life to help cope with the sacrifices they make," the report stated.

Despite efforts by Congress and the Pentagon to enhance benefits, GAO also reported survey results that found that many military members "complained that benefits were eroding."