DOD’s Contracted Bonus Amounts Were 58 Percent Less in 2010 than in 2008, Its Peak Year

DOD contracted $1.2 billion in fiscal year 2010 for enlistment and  reenlistment bonuses, an amount that was 58 percent less than the $2.8  billion contracted in fiscal year 2008, its peak year. For the services, total  contracted bonus amounts peaked in fiscal years 2008 or 2009 and then  decreased. Specifically, for fiscal years 2006 through 2009,  total contracted amounts for bonuses rose for the Air Force and the  Marine Corps and declined thereafter by 16 percent and 64 percent,  respectively. With the exception of the Army, the services contracted more on their  reenlistment bonus programs than on their enlistment bonus programs. Of  the $11 billion in contracted bonuses by all the services, $4.5 billion, or 40  percent, was for enlistment bonuses, and $6.6 billion, or 60 percent, was  for reenlistment bonuses. However, in fiscal years  2009 and 2010, the Navy’s average per-person enlistment bonus amounts  were higher than those of all the other services. For example, in fiscal year  2010, the Navy’s average enlistment bonus was $23,957, while the Army’s  was $5,969. With respect to reenlistment bonuses, the Air Force’s average per-person  bonus amount was higher than those of the other services from fiscal  years 2006 through 2008. The Services Have Processes for Identifying Occupations That Are Hard to Fill but Not for Identifying the Most Cost-Effective Bonus Amounts

The services have processes in place that include the analysis of data on  how difficult it is to retain and recruit particular occupations and the  subjective judgment of personnel who are involved in managing these  occupations. DOD guidance allows the military departments the flexibility  to offer a bonus to any occupation that meets certain criteria, such as  being hard to fill or retain, and they may adjust bonuses as market  conditions change. However, although much research has been conducted  on bonuses’ effects on enlistment and retention, DOD does not know  whether the services have been paying more than necessary to meet their  recruiting and retention goals. While efforts to develop ways to assess the cost-effectiveness of bonuses  have been made by some research organizations and have generated  interest at the individual service level, OSD has not coordinated research  in this area. Without such information- sharing, the services may not be able to fully take advantage of existing  and emerging methodologies for assessing cost-effectiveness, share  lessons learned, and ultimately obtain critical information needed to know  whether they are getting the best return on their bonus investments. DOD Is in the Process of Increasing Its Flexibility in Managing Special and Incentive Pays but Lacks Baseline Measures to Assess Outcomes

DOD has begun to increase its flexibility in managing special and incentive  pays, as authorized by the National Defense Authorization Act for Fiscal  Year 2008. In our review of 15 special and  incentive pays, 6 are currently entitlement pays and accounted for $3.9  billion, or 29 percent, of the $13.6 billion expended on the 15 special and  incentive pays from fiscal years 2006 through 2010. As a result, DOD may not be positioned to monitor  the implementation of this consolidation to determine whether it is in fact  resulting in greater flexibility and more precise targeting of resources and  what impact the consolidation is having on DOD’s budget. The Army, and the other services to some extent, demonstrated that  they can use bonuses flexibly in response to changing market conditions,  but they still do not know whether they are paying more than they need to  pay to attract and retain enlisted personnel. As the consolidation of the special and incentive pay programs is  completed over the next 7 years and the instructions directing the  services on how to administer the new programs are revised, monitor  the implementation of this consolidation to determine whether it is in  fact resulting in greater flexibility and more precise targeting of  resources and what impact the consolidation is having on DOD’s  budget. Agency Comments

In written comments on a draft of this report, DOD concurred with both  our recommendations. To conduct our work, we analyzed service data on enlistment and  reenlistment bonuses, reviewed Department of Defense (DOD) and service  regulations related to the use of bonuses and special and incentive pays;  interviewed DOD and service officials on the processes and  methodological tools in place to identify occupations eligible for bonuses  and steps taken to assess the effectiveness of their bonus programs;  observed two services’ meetings that are convened to determine which  occupations should be eligible for bonuses; interviewed researchers  knowledgeable about literature on bonus effectiveness; and reviewed  selected studies on this subject.
Why GAO Did This Study

The Senate report to accompany the 2011 Defense authorization bill directed GAO to assess the Department of Defense's (DOD) use of cash incentives to recruit and retain highly qualified individuals for service in the armed forces. This report (1) identifies recent trends in DOD's use of enlistment and reenlistment bonuses, (2) assesses the extent to which the services have processes to determine which occupational specialties require bonuses and whether bonus amounts are optimally set, and (3) determines how much flexibility DOD has in managing selected special and incentive pays for officer and enlisted personnel. GAO analyzed service data on bonuses and special and incentive pays, reviewed relevant guidance and other documentation from DOD and the services, interviewed DOD and service officials, and observed two working groups that were determining bonus amounts.

What GAO Found

DOD engaged in enlistment and reenlistment contracts for bonuses to servicemembers that totaled $1.2 billion in fiscal year 2010, down 58 percent from fiscal year 2008. Contracted amounts peaked in the Army and the Navy in fiscal year 2008 and declined thereafter; amounts peaked for the Marine Corps and the Air Force in fiscal year 2009 and then declined. From fiscal years 2006 through 2010, the services contracted a total of $11 billion for bonuses, with the Army accounting for 52 percent, the Navy, 24 percent, the Marine Corps, 16 percent, and the Air Force, 9 percent. About $4.5 billion of the $11 billion was contracted for enlistment bonuses and $6.6 billion for reenlistment bonuses. With the exception of the Army, the amounts the services contracted were higher for reenlistment than enlistment bonuses during this time period. For example, the Army's average enlistment bonus was higher than that of the other services in fiscal years 2006 through 2008, while the Navy's was highest in fiscal years 2009 and 2010. On the other hand, the Army's average reenlistment bonus was smaller than those of the other services during this period. The services have processes that include the analysis of data on how difficult it is to recruit and retain particular occupations and use these processes to adjust bonuses, but they do not know whether they are paying more than they need to for these purposes. DOD guidance allows the departments to offer a bonus to any occupation that they have difficulty recruiting or retaining, thereby allowing them to adjust their policies to changing market conditions. However, though much research has been conducted on bonuses' effects on enlistment and retention, DOD does not know whether the bonus amounts the services offer are optimal. Efforts to develop ways to assess the cost-effectiveness of bonuses have been made by some research organizations and have generated interest at the individual service level, but there has been no coordinated DOD-wide work to facilitate information-sharing among the services on this issue. Without such information-sharing, the services may not be able to fully take advantage of existing and emerging methodologies for assessing whether they are getting the best return on their bonus investments. DOD has begun to increase its flexibility in managing special and incentive pays while consolidating them into eight categories. GAO reviewed 15 of DOD's more than 60 special and incentive pays and found that during fiscal years 2006 through 2010, it spent $13.6 billion on those pays and that for about 30 percent of that amount, DOD was unable to adjust numbers of recipients or amounts based on market conditions because they had not yet been consolidated and were established in legislation. DOD's consolidation of special and incentive pays will allow the services more flexibility in managing them. However, at present, DOD has not established metrics that will enable it to determine whether this consolidation is resulting in greater flexibility as it transitions to the new categories by fiscal year 2014. As a result, DOD may not be positioned to measure future progress in meeting the intended goal of the consolidation, which is to give the services more flexibility.

What GAO Recommends

GAO recommends that DOD (1) coordinate with the services to facilitate discussions on conducting research, as appropriate, to determine optimal bonus amounts and (2) monitor the implementation of its consolidation of special and incentive pays to determine whether it is resulting in greater flexibility and what impact the consolidation is having on DOD's budget. In commenting on a draft of this report, DOD concurred with both recommendations.