In addition,  mobilized reservists are eligible for full health care benefits for themselves  and their dependents. Cost to Compensate Guard and Reserve Personnel Has Increased Significantly Since Fiscal Year 2000

The total cost to the federal government to compensate both part-time and  full-time National Guard and reserve personnel increased significantly,  about 47 percent, from fiscal year 2000 to fiscal year 2006. The cost  increased from about $13.9 billion in fiscal year 2000 to about $20.5 billion  in fiscal year 2006, as shown in figure 2. This cost includes (1) cash  compensation, such as basic pay and other allowances; (2) noncash  compensation, such as education assistance and health care; and (3)  deferred compensation, that is, benefits that promise future compensation  like retirement pay and health care. In addition to part-time reservists, about 9 percent of reservists work full- time, and their per capita cost to the federal government also increased, as  shown in figure 4, from about $90,100 in fiscal year 2000 to about $115,200  in fiscal year 2006, about 28 percent. This increase is similar to the  trends in active duty per capita compensation cost (see app. DOD Does Not Know the Extent to Which Its Mix of Compensation Is Meeting Its Human Capital Goals

DOD does not know the extent to which its mix of cash, noncash, and  deferred compensation is meeting its human capital goals of recruiting and  retaining personnel. However,  these efforts have been done in a piecemeal fashion that has shifted the  mix of reserve compensation toward more deferred benefits, even though  this may not be the most efficient allocation of compensation to enable  DOD to meet its recruiting and retention human capital goals. Figure 6 shows an increase in deferred compensation from 12 percent of  total reserve compensation in fiscal year 2000 to 28 percent in fiscal year  2006. This preference for cash  compensation has a profound impact on the efficiency of DOD’s  compensation system, especially considering that fewer than one in four  part-time reservists will receive these costly deferred benefits. More  specifically, about 24 percent of those who join the guard and reserve will  ultimately earn nondisability retirement pay and health care for life. Moreover, these changes may not be sustainable over the long  term. DOD Does Not Have an Established Compensation Strategy and Performance Measures to Gauge the Efficiency of Reserve Compensation

DOD is unable to gauge the efficiency of the mix of reserve compensation  and its compensation tools because it has not established a compensation  strategy or performance measures. DOD Does Not Have Transparency over Total Costs of Reserve Compensation

Decision makers in Congress and DOD do not have adequate transparency  over total costs for providing reserve compensation—including the  allocation of costs to cash, noncash, and deferred compensation—and the  cost of mobilized reservists. Good business practices require adequate  transparency over investments of resources, especially in times of fiscal  constraint. Until total costs for  reserve compensation are compiled in a transparent and easily accessible  manner, decision makers will be unable to determine the affordability and  efficiency of the reserve compensation system. Knowing these costs is  especially important given the growing fiscal challenges the country faces. Recommendations for Executive Action

To improve the appropriateness of the reserve compensation system and  to gain transparency over total reserve compensation costs, we  recommend that the Secretary of Defense take the following actions:     Establish a clear compensation strategy that includes performance  measures to evaluate the efficiency of compensation in meeting  recruiting and retention goals, and use the performance measures to  monitor the performance of compensation and assess what mix of  compensation will be most efficient in the future. Compile the total costs to provide reserve compensation for part-time,  full-time, and mobilized reservists and communicate these costs as well  as the allocation of these costs among cash, noncash, and deferred  compensation to decision makers within the administration and  Congress—perhaps as an annual exhibit as part of the President’s  budget submission to Congress. We  interviewed DOD recruiting and retention officials to determine the extent  to which compensation is used to attract and retain reserve personnel. 10. 19. 21st Century Challenges: Reexamining the Base of the Federal  Government.
Why GAO Did This Study

The Department of Defense (DOD) has increasingly relied on reserve personnel to carry out its military operations. Congress and DOD have taken steps to enhance reserve compensation, such as improving health care benefits. Concerns exist, however, that rising compensation costs may not be sustainable in the future, especially given the nation's large and growing long-range fiscal imbalance. Under the statutory authority of the Comptroller General to conduct work on his own initiative, GAO (1) reviewed how much it has cost the federal government to compensate reserve personnel since fiscal year 2000; (2) assessed the extent to which DOD's mix of cash, noncash, and deferred compensation has helped DOD meet its human capital goals; and (3) evaluated the extent to which DOD's approach to reserve compensation provides transparency over total cost to the federal government. To address these objectives, GAO analyzed budget data and relevant legislation and also interviewed appropriate officials. GAO focused this review on part-time reservists and full-time, active guard and reserve.

What GAO Found

Using fiscal year (FY) 2006 constant dollars, the federal government's total cost to compensate part-time and full-time reserve personnel has increased 47 percent since FY 2000, rising from about $13.9 billion in FY 2000 to about $20.5 billion in FY 2006. Most reservists are part-time, and their per capita compensation costs nearly doubled from about $10,100 in FY 2000 to about $19,100 in FY 2006. Additionally, a small percentage of reservists work full-time, and their per capita costs increased about 28 percent from FY 2000 to FY 2006. Cash compensation, which servicemembers see in their "paycheck," has increased about 19 percent. However, much of the total growth in compensation is driven by the costs for deferred compensation. These costs tripled over this period, primarily attributed to enhanced health care benefits. Moreover, DOD officials anticipate significant continued growth in health care costs because of the expansion of health care coverage to reserve personnel in FY 2007. DOD does not know the extent to which its mix of pay and benefits meets its human capital goals in part because it lacks an established compensation strategy to identify the appropriate mix of reserve compensation to maintain its force. DOD and Congress have added pay and benefits using a piecemeal approach that has not been based on an established strategy and that has not adequately considered the appropriateness, affordability, and sustainability of the related costs. These additions have contributed to a shift in the mix of compensation toward more deferred benefits--that is, future compensation such as retirement pay and health care for life. Deferred benefits increased from 12 percent of total reserve compensation in FY 2000 to 28 percent of total compensation in FY 2006. This increase in deferred compensation may not be the most efficient allocation given that fewer than one in four of those who join the reserve will ultimately earn nondisability retirement pay and health care for life. Moreover, DOD does not know the efficiency and effectiveness of these changes in meeting its recruiting and retention goals because it does not have performance measures. Without performance measures, DOD cannot determine the return on its compensation investment or make fact-based choices on how its compensation resources should be allocated. DOD's approach to reserve compensation does not provide decision makers in Congress and DOD with adequate transparency over total cost for reservists--including the allocation of costs to cash, noncash, and deferred compensation, as well as the cost for mobilized reservists. Despite the fact that sound business practices require adequate transparency over investments of resources, currently costs are found in multiple budgets within three federal departments. Until total reserve compensation costs are compiled in a transparent manner--and decisions are based on established compensation strategies--decision makers will be unable to determine the affordability, cost effectiveness, and ultimately the sustainability of the reserve compensation system. Increased transparency is especially important given the growing fiscal challenges the country faces.