To counter ever-rising personnel costs in the ranks, defense officials should consider radical changes to troops’ compensation packages like replacing annual pay raises with more targeted bonuses and mandating 25 years of service for full retirement benefits, according to a new budget analysis released this week.

“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,” wrote Seamus Daniels, associate director for Defense Budget Analysis at the Center for Strategic and International Studies.

“Left unaddressed, high personnel costs may limit resources for Department of Defense modernization initiatives and could threaten the long-term sustainability of the force.”

The CSIS report notes that as military manpower totals have decreased over time, personnel costs for the department have continued to rise. From 1952 to 2016, end strength numbers for the military fell by more than 64 percent, but total DOD personnel spending rose by 110 percent.

The average cost per active duty service member for the department in fiscal 2021 was $136,000. That takes into account things like basic pay, specialty bonuses, housing stipends, and medical benefits.

Adjusted for inflation, that figure is down slightly from the height of the wars in Iraq and Afghanistan, when it peaked at around $142,000. In fiscal 2001 the cost per troop for the military was about $89,000, and in fiscal 1991 it was about $70,000.

The report said part of that expense is due to a rise in the percentage of officers in the services over the last few decades, since they receive higher pay and benefits. Officers made up less than 14 percent of total active-duty end strength in fiscal 2001 and nearly 18 percent this fiscal year.

But compounding annual pay raises and rising medical benefits costs also play a major role, Daniels found. Personnel costs account for about 30 percent of the entire military budget.

“Higher personnel costs, coupled with rising costs to operate and sustain existing platforms, necessitate continual increases in the defense budget topline to simply keep the force at its current size,” he wrote.

Defense officials in the past have struggled with the issue of rising personnel expenses and constrained military funding. After 2013, when the Budget Control Act capped annual military spending (along with other federal agencies), Pentagon planners backed smaller-than-expected annual pay raises for troops to save funding for modernization and training priorities.

But after a few years of that plan, lawmakers overrode administration plans for flattened pay raises, arguing that the potential injury to families’ finances and troops’ morale outweighed the budget flexibility advantages.

The report proposes several policy changes defense leaders should consider to address the problem, or at least to keep the issue of rising costs at the forefront of future budget discussions.

They include offering smaller annual military pay increases and boosting more specialty pays and bonuses, to “reduce turnover for high-skilled occupations while similarly increasing it for low-skilled occupations, where retention is not as important.”

It also suggests capping pay for service members after a several years if they fail to gain promotions, and “gradually” increase the years of service for full military retirement benefits from 20 years to 25. In 2015, Congress’ Military Compensation and Retirement Modernization Commission backed both ideas.

“DoD has a sacred responsibility to adequately pay and provide for service members and their families, which are the core of the U.S. military,” Daniels wrote. “But the current cost of personnel is unsustainable and must not be accepted as an immutable fact.”

Defense Department officials did immediately respond to a request for comment about the findings. The full report is available on the CSIS web site.

Leo covers Congress, Veterans Affairs and the White House for Military Times. He has covered Washington, D.C. since 2004, focusing on military personnel and veterans policies. His work has earned numerous honors, including a 2009 Polk award, a 2010 National Headliner Award, the IAVA Leadership in Journalism award and the VFW News Media award.

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