Senior Defense Officials Hold Round Table on the 14th Quadrennial Review of Military Compensation

View Online Senior Defense Officials Hold Round Table on the 14th Quadrennial Review of Military Compensation Jan. 15, 2025 MODERATOR: Good morning. Thanks for joining us for our backgrounder on the release of the 14th Quadrennial Review of Military Compensation. The information provided to you today is attributed to senior defense officials. I am now turning this over to senior defense official number one. SENIOR DEFENSE OFFICIAL ONE: Good morning, everyone. Thank you for taking the time to speak with us today regarding the release of the 14th Quadrennial Review of Military Compensation. We'll refer to that moving forward as the QRMC. I know that many of you may be familiar with the QRMC, but for those who are not, it may be beneficial to have a brief background for additional context before we get into the specific work of the 14th QRMC. And so I'll proceed by saying that the QRMC is a long standing and periodic in-depth review of military pay and compensation required by law every four years. Specifically, the law requires that the president complete a review of the compensation system for the uniformed service members of the Department of Defense, the Coast Guard, and the Commissioned Corps of the National Oceanic and Atmospheric Administration NOAA, and Public Health Service. By law, the president initiates or charters the review and the Secretary of Defense is named as the executive agent to conduct the review. The QRMC complements the department's routine review of pay and compensation programs, but typically with a focus on more comprehensive issues that can often lead to changes in compensation methodologies or principles. Ultimately, the goal of the QRMC is to ensure that service members are paid competitively alongside their civilian peers and that they can afford the necessities of life and that their total benefits package is sufficient to attract and retain service members. And this is important because we know through longstanding research and lived experience that when the department prioritizes the basic needs of its service members and families to include fundamental quality of life factors, our members are better able to focus on their mission to defend the nation. And this requires a competitive compensation package to incentivize both the next generation to serve as well as recognizing and retaining military skill sets that we have today. Structurally, the QRMC is considered an independent analysis of military pay and compensation. The research is headed by a director and is conducted by our federally funded research centers, our FFRDCs, where the result of the analysis is briefed and reviewed and discussed by a senior advisory group. That Senior Advisory Group comprises senior members of the civilian Department of Defense as well as uniformed service members to include our senior enlisted advisors and the Senior Enlisted Advisor to the chairman of the Joint Chiefs of Staff. Now having that background on the QRMC as a whole, I'll turn a little bit about the 14th QRMC specifically. President Biden established the charter for this QRMC on January 31st, 2023. And today, the final report of the QRMC will be released. This report is referred to as volume one and provides an overview of the six areas of study directed by the President and the Secretary of Defense, the three core findings, and eight subsequent recommendations. The full research of the QRMC will be published as additional volumes to the volume one at a later date, most likely in February or March. I'll turn to senior defense official two, momentarily to review those six areas of study, three core findings, and eight recommendations in greater detail, but before I do, let me share a few additional points. As senior defense official two will note, overall, the QRMC found that the department's compensation package is strongly competitive with the civilian labor market. However, there are areas for some improvements that will ultimately benefit service members, their families, and the department as a whole. The Department has accepted these recommendations in full and will endeavor to endeavor to implement the recommendations over the next few years. It's also important to note that the 14th QRMC is unique in that it was the first report to examine the impact of dual income households on military compensation. Specifically, how the prevalence of dual income households and factors of military life such as frequent permanent change of station moves, separations, and child care access may require policy and programmatic changes to compensation as well as non-monetary programs to ensure successful recruitment, retention, and readiness of the force. And moving forward, the Department will continue to work with our partners in Congress, our senior leadership, the interagency, and military and veteran service organizations to strengthen economic security and improve the quality of service for our force such that we can maintain our recruiting objectives as well as our retention objectives. And with that, I'll turn to senior defense official two to speak in greater detail about the work. SENIOR DEFENSE OFFICIAL TWO: Thank you. When President Biden established the QRMC, this 14th QRMC, he stated we have a sacred duty to take care of our men and women in uniform and went on to say our service members deserve a 21st century military compensation system that rewards their contributions and incentivizes the next generation of men and women to serve. So in furtherance of those objectives, he directed the department to study five areas, and I'll talk about those in just a second. And at the request of the Commander, Special Operations Command and the chairman of the Joint Chiefs of Staff, the Secretary of Defense added a sixth area study. So what were the six areas that the QRMC examined, the 14th QRMC examined? We first looked at the benchmark that was established by the ninth QRMC that said if we're paying our members at about the 70th percentile of what comparable civilians receive and comparable in terms of age, experience, education, we're paying enough to recruit and retain the quality of the force we need. So at the 70 percentile of military members, regular military compensation, that's basic pay, basic allowance for housing, BAS subsistence allowance, and tax advantage of the two allowances being tax free would mean that they're receiving more pay than a comparable civilian — than 69 out of 100 comparable civilians receive. And I think the infographic you received shows that we are about the 83rd percentile for enlisted members and the 76 percentile. So, we were asked to examine that and determine whether the 70th percentile remains the appropriate benchmark. We also looked at the structure of basic pay tables. So we examined junior enlisted pay, mid-grade enlisted pay, senior enlisted pay, as well as officer pay. We looked at the methodologies used to calculate several allowances such as the basic allowance for housing, the basic allowance for subsistence, cost of living allowances, and the basic needs allowance. We did a review of entitlements for deployed members and this was the request from the commander SOCOM and chairman Joint Chiefs of Staff; they asked should we be paying members additional pay based on being deployed in defense — in support of the National Defense Strategy or should we continue to pay them extra pays based on the risks associated with the area they're deployed to – So that was the study we also looked at. We also looked at the — how the demographic shift towards a dual income military families and some of the unique challenges of military life. Does that require a change to the pay table for those members? So the QRMC came up with three core findings. One was that the military compensation package, as senior defense official one said, is strongly competitive with the civilian labor market. However, the QRMC did recommend some adjustments that would be appropriate to maintain responsiveness — responsiveness to recruiting and retention needs. We also determined that reducing pay volatility and variability and improving our data quality of the information we collect would benefit service members in the department. And then the third finding was that targeted non-cash compensation such as improving the barracks, giving greater access to medical care, improving dining facilities, and child care, targeted non-cash compensation such as that may offer better returns on our investment for service members and families than simply increases in basic pay. So those were the three core findings. What did the RMC recommend? We had eight recommendations. First, we have recommended updating the benchmark. As I said earlier, the benchmark is currently at 70th, we recommended increasing it to the 75th percentile so that members RMC, Regular Military Compensation, would exceed 74 out of 100 comparable civilians. And we do pay a premium above the 50 percentile to reflect some of the challenges that our members face in military service and some of the risks they faced. We also recommended improving communications with service members regarding the total compensation package. A lot of people think about military pay as just being basic pay. And as I said, for cash compensation, we tend to look at regular military compensation. But there's a lot of other factors out there that military members receive, such as the defined benefit plan, the Thrift Savings plan, a traditional retirement plan, free medical and dental care. And we want to explain all aspects of the total compensation package to our members and also to our potential recruits so that perhaps a parent could sit down with a potential recruit and say, wow, this compensation package is really good. It's a lot more than just basic pay, and that would help us with recruiting. We also recommended improving constructed credit. When we bring someone on such as a surgeon, we don't bring them on as just a 1st Lieutenant or 2nd Lieutenant. We often bring them on as a Major, Lieutenant Colonel, or Colonel. That's currently allowed by law. But the way they come in now is they're paid as if they're serving with less than two years of service. So an O-5 with, say, 10 years or 12 years of service may make as much or more than a colonel with less than 2 years of service. So we determined that we could bring members in at a more appropriate grade, but still compensate them appropriately. If we change the law or ask Congress to change the law to allow us to bring the members on with credit for years of service for purposes of pay. So they would come in, not just a higher grade, they would also come in with higher pay because they get more credit for the years of service. We recommended improving and updating the methods used to calculate the basic allowance for housing. And we also recommended updating the method used to calculate CONUS and OCONUS , overseas cost of living adjustments. We recommended finally reviewing deployed entitlements every five years. That relates back to the Commander, SOCOM and Joint Chiefs of Staff's request to look at deployed entitlements. And we determined that we should look at all areas where members are deployed every five years and determine if we're compensating them appropriately or not. We recommended exploring additional retirement options for military spouses. As senior defense official one pointed out, members frequently have permanent change of station moves that affects a military spouses are really a civilian — a nonmilitary spouses ability to pursue a career and also to accumulate money for — for retirement because there's vesting requirements in many civilian pension plans that you have to serve a number of years in order to keep your employer contributions. So we are recommending that Congress work with us to allow these military spouses to keep everything in their 401k plan, for example, regardless of vesting requirements. And we try to incentivize that by providing a tax incentive to the employers to do that. It's currently allowed for small employers with less than 100 employees. They get the tax credit if they do that for military spouses. But we would like to see that expanded more broadly so it would cover all military spouses. And then finally, we recommended a quality of life review. As I mentioned, the total compensation package is not just cash pay. There's a lot of other factors involved there, too. But we want to make sure that we are providing them with quality service, quality health care, quality, barracks, and quality dining facilities. So we recommended exploring that on a regular basis just like the QRMC to make sure that those non-cash benefits are appropriate and are distributed correctly. So that concludes my portion of the briefing. So back to you. MODERATOR: OK. MODERATOR: Thank you. OK. We're going to call on some reporters. We ask that your questions are focused on the QRMC report. Please limit your questions to one question and one follow up. We'll start with Patty, Task and Purpose. Q: Hi, You mentioned recommendations to adjust based — for recruiting and retention needs. What are those recommendations and how does that kind of factor into the recent NDAA pay increase? DEFENSE OFFICIAL ONE: So I would say that the totality of the QRMC, the complete body of work is focused on what is the appropriate pay and compensation approach as a package that is necessary for the Department to continue to achieve recruiting and retention objectives. In this case, the QRMC did not recommend any specific changes to basic pay. But as senior defense official two just went through, there were eight additional recommendations that we do plan on implementing in order to continue to keep the — the total package competitive to achieve recruiting and retention objectives. And to summarize some of that is, adjusting the RMC benchmark from the 70th to the 75th. We recognize that, if you look at that infographic that we shared with you that both enlisted and officers are above the 75th and certainly for enlisted with the additional increase in basic pay that will go into effect this spring that came from Congress this year, it will even further increase from that 83rd percentile up to the 88th percentile. And for junior enlisted, it will go from the 93rd percentile up to the 95th percentile. What we will likely be paying close attention to moving forward is you'll see that officer percentile is at the 76th, right above the 75th percentile benchmark that the QRMC recommended increases for. So we will certainly be monitoring that to see if we need to make any sort of additional adjustments to officer basic pay and RMC moving forward to maintain recruiting and retention objectives. Beyond adjusting the benchmark, also that new methods of lateral entry so that we can recruit especially — and retain especially critical skills such as medical or cyber and other domains. And then, we also — the QRMC recommended considering changes to the methodology for BAH specifically that is potentially moving away from the housing profiles that we have today to potentially setting BAH rates on the basis of number of bedrooms. There's more work that needs to be done on that. But overall, the department believes that that is a reasonable recommendation and approach. And so over the next few years, we will be doing a lot of work to take a look of how we transition the BAH program from a defined profile to number of bedrooms and then how that would equate for — for service members. And then lastly, that improved communications with members. The QRMC as well as other data and evidence indicates again that it's a strongly competitive pay package. And — and so we want to make sure that our service members understand not only what they're receiving various options that they have to kind of customize or tailor what they receive and how to put it to best effect for themselves and their families. Q: Thank you. And then for me to better explain this, can you, for the part on the slide where it mentions junior enlisted troop pay is higher than 90th percentile for civilians, can you put that in like real human numbers instead of percentiles? It's a little hard to understand. DEFENSE OFFICIAL ONE: I think we can provide that separately to make sure that we get you those specific numbers. Q: Thanks. MODERATOR: Konstantin, Military.com. Q: Thanks. Thanks, everybody, for doing this. So one of the things that service members that talk to us say is that, for example, you know, as far as their pay is concerned, it's fine, you know, but the money that the government withdraws, for example, one of the key points of paying for a lot of service members is the food allowance, the BAS. You know, junior troops basically get paid that allowance and then, for most of them, you know, get that immediately withdrawn under the argument of, well, you know, we're taking this for, you know, to fund the DFACs or the mess halls. And then they turn around and those mess halls are either deficient, they're not able to utilize them, you know, what have you. And so, my question to you all is, you know, as part of this review of, you know, the pay and the overall compensation package, was that dynamic, that factor of like on paper we're paying these people for a benefit, but in reality the benefit is not being delivered to them, was that considered in this review? Thanks. SENIOR DEFENSE OFFICIAL ONE: I think that that's a very astute question. We're also aware of those concerns from service members. You know, the current BAS that they receive and then the current methodology for Essential Station and messing takes into account that the vast majority of service members, particularly at a junior enlisted level, don't have the ability to necessarily prepare food for themselves based upon where they may be living. But we also are aware that service members are potentially interested in kind of being able to make their own food. And so we continue to work with the services to take a look at the art of the possible both in terms of barracks and then if there's any changes we would want to take with, say, BAS or Central Station and Messing. And you know, part of that quality of life review that the QRMC recommends and that the department endorses moving forward is designed to kind of take a look at this as a quality of life, quality of service issue. MODERATOR: Jared, Federal News Network. Q: Good morning, all. Thanks for doing this. Two part question on BAH, if I could. Could you walk us through a little bit the methodology that you use to get to that 17 to 60 percent above average civilian range that you came up with? Just because I think you're going to have some readers of this who say that that's not their individual lived experience. And then on the recommendations for reform moving from housing profiles to number of bedrooms, would that be a fixed number of bedrooms per pay grade? How would that work notionally? SENIOR DEFENSE OFFICIAL TWO: I'll start with the analysis. We — the law basically says we should pay BAH based on what comparable civilians expend on housing. So I — we, again, believe they looked at the civilian population survey to determine what comparable civilians are spending in a particular area, and then they compared that to BAH rates for that area. And from that, they found that the BAH was, as the chart says, from 17 to 60 percent higher than what comparable civilians were spending on housing. And I may be wrong on what — whether it was the civilian population survey or some other survey, but that — that is how they did it by comparing readily available public data to the BAH rates for that particular area. SENIOR DEFENSE OFFICIAL ONE: And then I can take the second part with respect to looking at converting from profiles to number of bedrooms. We still obviously need to do some work on this as to what it would look like ultimately, but yes, that's essentially what the analysis recommended, and we believe would be appropriate is a defined number of bedrooms based upon with or without dependents and then by pay grade. Q: Super quick follow on that, is that just because some of those profiles just don't really exist in some military housing areas or what's the reasoning there? SENIOR DEFENSE OFFICIAL ONE: That's correct. In certain areas of the country — so for example, one of the profiles is like a two bedroom townhouse. And what we just generally find is that throughout the country, you know, we're not finding a lot of two bedroom townhouses. And so we do a lot of work to make sure that we're calculating appropriately what that would look like in various different military housing areas across the country. But we think it's appropriate to modernize, you know, based upon number of bedrooms. I think what the analysis also took a look at is that sometimes there's a view that, say, a townhouse may be less desirable or less expensive than a detached home. But as you all may be aware of, depending on the area that you're living in, we have a lot of what I think the industry would term luxury townhomes that are being built that are often even more expensive than detached single family homes. And part of that is, you know, location, location, location. And so we want to make sure that we're taking the changes in the overall rental market into account as we are setting BAH trades. Makes sense. Thanks. SENIOR DEFENSE OFFICIAL TWO: If I can clarify on your first question with the 17 to 60 percent above market for BAH, that's not exactly a surprising finding because when we do our data collection in each of these military housing areas and we take a look at the entire market within the military housing area, but then we exclude areas that are high crime, we exclude areas that are low income, we exclude areas that are near industrial areas – then we restrict the data collection process to essentially the area where about 90 percent of the military members tend to live in the vicinity of the military installation. And so what we have already done is we've taken the entire military housing area and all of the housing rental housing costs. And we have only selected a subset of that, which tends to be a higher rate or a higher cost piece of it because we've excluded some of the less desirable areas. So just because we're finding that BAH is set 17 to 60 percent above, does not — is not necessarily indicative of that BAH is overpriced or overvalued. It has much to do with how we select the data and how we compute the rates. I hope that helps. MODERATOR: Leo, Military Times. Q: Yeah, thanks for doing this. I'm wondering if you can just give a little bit more detail about that quality of life review. I think I got it mixed up with another one. Would that be — would that be every year? And what kind of results would we see from that? Is it recommendations, is it policy changes, what would go into that? SENIOR DEFENSE OFFICIAL ONE: That's a great question. I think many people are familiar with the work that was done on the Congressional side with the Quality of Life Review. And we did find that work are helpful and because the QRMC is really focused on compensation, but yet we recognize that service members often make retention decisions on the basis of, you know, kind of, you know, their experience within the military. And that's a combination of both compensation and non-compensation programs, as we mentioned before, that there's value in periodically reviewing those kind of quality of life, quality of service factors in a similar manner to what we do for the QRMC. And so we do the QRMC every four years. We usually complete that work between, you know, two to three years. There's been some conversation of we would do a QRMC and then we would immediately pivot to a quality of service review. And then when we finish the quality of service review, then pivot back to another QRMC. So it would be cyclical. This is some of what the QRMC takes a look at and recommends. And that way the department senior leaders can holistically take a look at where should that next dollar be spent. Is there value in investing that dollar in additional, you know, cash compensation changes, RMC changes, or will we get a better return on investment for both recruiting and retention purposes if we put that next dollar into, say, quality of service programs as was mentioned before, barracks, dining, child care, military spouse employment efforts, things like that. We know that under constrained budgetary environment, the department is inevitably going to have to kind of balance those investments and it would be helpful to have a body of work similar to the QRMC that takes a look at some of those quality of service aspects. And then the two bodies of work can mutually inform each other. Is that helpful? Q: Yeah, so it wouldn't be — it wouldn't be like an annual one then. You're saying it would be kind of run counter to this, so maybe every few years. Is there any concern about that not being rapid enough? I mean, that was part of the impetus between, you know behind the quality of life review on Capitol Hill was that folks felt like with the inflation costs and some of the issues that they were seeing, they just weren't being addressed quickly enough by the current processes. SENIOR DEFENSE OFFICIAL ONE: I think, you know, conceptually that's how it's envisioned right now. But again, I think that a quality of service review similar to the QRMC is a complementary effort. The department, you know, consistently and continuously reviews different, you know, paying compensation variables throughout the year. And similarly, if we're seeing an acute issue arise, we see new research or analysis that that indicates there's a growing problem in an area such as the quality of service area, then we would seek to immediately take action in between reviews. MODERATOR: Ellen. Q: Hi. Sorry about that. I'm focused on the health care. I'm assuming that health care is part of the total compensation considered by the review, but how exactly do they account for that? Is it the amount of care provided or the value of similar insurance coverage? SENIOR DEFENSE OFFICIAL ONE: The QRMC does not specifically look at health care, per se. And — but understanding that service members have concerns about health care, either access or quality, that is again another reason why there was a recommendation to take a look at quality of service factors because we know that, you know, having good access to good quality care is an important dynamic that can influence retention. SENIOR DEFENSE OFFICIAL TWO: And I would say that the quality of — quality of service review, as senior defense official one said, it was not a focus of the — of the QRMC. The QRMC looks more like a cash compensation. But we had broader representation, I think, in the QRMC from the enlisted community than we have had previously. And from them and from senior DOD officials as well, they felt there was a need to balance the review of cash compensation with a review of these quality of service, quality of life initiatives. So that's why a new recommendation emerged for this — from this QRMC, even though this QRMC did not specifically look at factors such as health care or dining facilities or barracks. They just concluded it was — it was necessary to have a review to balance the — review the cash compensation as well.

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