Pentagon Personnel Costs at Historic High

Army photo

Since 9/11, personnel-related expenditures have ballooned for the Defense Department. While reining in such costs could free up money for modernization, doing so would come with political and manpower risks that may give policymakers pause, analysts say.

The total cost of military personnel includes regular pay and special pay, plus other benefits such as health care, retirement, housing and subsistence allowances.

Last year, the Pentagon employed about 1.4 million active-duty troops and 800,000 civilians and maintained a reserve component of more than 800,000 members, according to a new Center for Strategic and International Studies report by defense budget analyst Seamus Daniels, “Assessing Trends in Military Personnel Costs.”

“While today’s U.S. military is near its smallest size since the end of World War II in terms of active-duty end strength, personnel costs are at a historic high — surpassed only by the height of operations in Iraq and Afghanistan,” Daniels wrote. “Left unaddressed, high personnel costs may limit resources for Department of Defense modernization initiatives and could threaten the long-term sustainability of the force.”

Between fiscal years 2000 and 2012 during the peak of the Afghanistan and Iraq Wars, the average cost per service member increased a whopping 64 percent — adjusted for inflation — while the average cost per Defense Department civilian grew by over 25 percent. The average cost per active-duty service member is now close to $140,000, while total personnel-related costs — including costs for running the Defense Health Program, family programs and other initiatives — exceed $200 billion, according to the study.

Drivers of this cost growth include military pay raises above the Employment Cost Index — which measures private sector labor costs — as well as increases in housing, health care and retirement payments, the report said.

Regular military compensation now substantially exceeds the Pentagon’s benchmark goal of the 70th percentile of earnings for civilians — or the point at which 30 percent of comparable civilians would earn more, according to a recent report by the Congressional Budget Office,

“Alternative Approaches to Adjusting Military Cash Pay.”

In 2020, the Defense Department spent about 25 percent of its $630 billion base budget on cash pay and benefits for current service members, according to CBO.

“In 2018, regular cash pay for enlisted personnel was at roughly the 90th percentile of the earnings of civilian workers with comparable years of experience and some college education, about 20 percentiles above the benchmark. In addition, research indicates that, overall, DoD has successfully met its staffing needs for the force,” the study said. “Those data raise questions about whether DoD is paying more for its personnel than is necessary to meet its goals.”

The department could potentially cut back and still reach its recruitment and retention targets while pursuing modernization, the report said. However, in the future, “if pay growth was too slow, regular cash pay would eventually fall below DoD’s goal, which could make it difficult for the department to achieve its recruiting and retention goals,” it cautioned.

Daniels suggested a number of policy options that could potentially help control expenditures, including: capturing the cost of current personnel policy actions on future expenditures; shifting the makeup of compensation; exploring cost-sharing opportunities in compensation and benefits; gradually increasing the years of service required for military retirement; rethinking personnel requirements for platforms, missions and operations; and reexamining the allocation of roles and missions among the military services.

“Growth in costs associated with personnel could hinder DoD as it tries to operationalize its strategy and prioritize the modernization of key military capabilities,” the CSIS report said. “However, tackling high personnel costs is not without its challenges that have bedeviled previous attempts at reform.”

Compensation is an integral part of the military’s recruitment and retention efforts, it noted.

“Policymakers may be hesitant to make adjustments to pay and benefits that disrupt those activities,” the study said. “They may similarly look to avoid the political ramifications of making difficult decisions and politically unpopular changes to the current system. Adjusting the military compensation system will require careful cooperation between the administration, senior military leaders, DoD civilian leaders and Congress — and a willingness on all sides to expend political capital.”

Topics: Defense Department