GAO: Defense needs to improve management of incentive pay

The Defense Department pledged $11 billion in enlistment and re-enlistment bonuses during the past four years, but it does not effectively measure whether the incentive pay has been a good use of money, according to a new report.

From fiscal 2006 to fiscal 2010, the military services signed contracts worth $6.6 billion in re-enlistment bonuses and $4.5 billion for enlistment bonuses, the Government Accountability Office found. The figures reflect the total amounts of contracts signed by enlistees or re-enlistees, and may not reflect the actual amounts paid in that fiscal year, according to the report. In fiscal 2010, Defense pledged $1.2 billion in such bonuses, a 58 percent decrease from fiscal 2008.

Defense has at its disposal more than 60 special and incentive pay programs, including various enlistment and re-enlistment bonuses. The programs are used to staff hard-to-fill duty assignments, retain personnel with valuable skills and ensure comparability with civilian sector salaries. The amount of enlistment and re-enlistment bonuses vary by service and year. For example, in fiscal 2008, the Army's average enlistment bonus was $18,085, while in fiscal 2010, the Navy's average enlistment bonus was $23,957. In fiscal 2010, the Navy's average reenlistment bonus was $32,719.

GAO found the services, in particular the Army, demonstrated flexibility in how they use bonuses, especially in response to changing market conditions.

The agency said, however, that although much research has been done on the effects incentive pay have on enlistment and retention, Defense does not know if the services have been paying more than necessary to meet their goals. "Identifying optimal bonus amounts is challenging because such studies must control for the numerous, changing factors that affect individuals' recruiting and retention decisions, such as the unemployment rate, the deployment rate resulting from overseas operations and the changing public perceptions of the war," the report stated.

The services use analytical models to determine which occupations should receive enlistment or re-enlistment bonuses and they seek stakeholder input on the programs. The agencies told GAO they regularly monitor the performance of their bonus programs.

"Effective management of cash incentives is particularly important, given the current budgetary environment and the secretary of Defense's initiatives to instill a culture of savings and cost accountability across DoD," the report stated. Special pay and bonuses make up less than 1 percent of the department's overall budget.

GAO recommended the undersecretary of Defense for personnel and readiness coordinate with the services on conducting research to determine ideal bonus amounts, and monitor the consolidation of the special pay and incentive programs and its implementation. Defense agreed with both recommendations, but does not have immediate plans to conduct research into optimal bonus amounts.

"This will not be a simple project, and because of its complexity, will require significant funding," department officials said in comment to the report. "We will continue to make this a priority research project and will begin when funds are available."