Military Compensation Reform in the Department of the Navy

Policy-makers and analysts have consistently cited urgent needs to reform the military compensation system. In spite of this broad consensus, however, transforming this system into a set of compensation tools aligned with the Department of the Navy’s (DoN’s) goals and objectives will not be easy. In this memorandum, we assess the extent to which major, existing compensation tools align with these goals and principles, and recommend changes that would better align compensation with these goals. Our recommendations revolve around three themes. First, the current system is inflexible and does not maximize taxpayers’ return on investment. A better-aligned system would expand use of the DoN’s more flexible compensation tools. Second, the DoN does not have any tools that are explicitly designed to reward high performance. However, existing compensation tools could be modified to provide this linkage. Finally, the current system is heavily skewed toward deferred compensation such as retirement pay, retiree health care, and TRICARE for Life. The DoN should seek to remove this bias by supporting the repeal of recent enhancements to these programs or, at a minimum, by aggressively resisting any further increases. More generally, offering cafeteria-style health care and retirement benefits would improve flexibility and help maximize effectiveness.