Getting back to commitment

In watching the testimony on the pilot crisis, I noted that the Marines do not rely on bonus payments to the same extent as other services. The Air Force has paid a $25K annual bonus for decades that they would like to increase to $35K. In contrast, the Marines haven't offered a bonus since 2011 and plan to offer a temporary, targeted bonus to address its pilot retention concerns.

I recently participated in a conversation about pilot retention during which I learned that a pilot who leaves the service after their initial service commitment and flies for the airlines will make $1.3 million more than if they stayed in the Air Force until 20 years and then began a flying career. I have not verified this number; but, clearly, the Air Force cannot pay pilots a $1.3 million bonus.

After the conversation, I re-read Dan Ariely's book Payoff in which he addresses the long-term effect that bonuses have on worker behavior.

“The bonus, however, would put a numerical value on something that wasn’t countable to begin with: your commitment”

It seems the Marines understood long ago that commitment was not something they were willing to sacrifice by offering extrinsic rewards. They would rather see those who lack commitment leave. Now that the Air Force has established a bonus, pilots have come to expect these payments. Even when the airlines have been in periods of decline, the Air Force has been unable to curtail bonuses. Why? Perhaps, they are in a predicament where they cannot restore intrinsic rewards that build commitment. If this is the case, how does an organization shift from the transactional relationships that bonuses foment and return to a reward mechanism that builds commitment?

Blended Retirement System May Exacerbate Air Force Pilot Shortage

The Air Force is falling short of its goal of retaining 65 percent of its pilots beyond their 10 year active duty service commitment (ADSC). The Blended Retirement System (BRS) may worsen the problem. Under the previous retirement system, pilots who left before reaching 20 years of service did not receive any retirement benefits. The new system establishes a 401k-style Thrift Savings Plan (TSP) account where DoD matches up to five percent of a member's salary. By the time pilots reach 11 years of service, the value of the match will grow to $47,500. Pilots no longer have to remain in service (or transfer to the Guard or Reserve) to complete 20 years of vesting. They can leave and keep their TSP account.

The new system recognizes that mid-service retention could be challenging, so it allows the services to offer continuation pay up to 13 times regular monthly pay when members reach 12 years of service. This is in exchange for four addtional years of service. Presumably, once members reach their 16th year, they are more likely to remain until retirement. The maximum continuation pay is currently $86,764.

This may not be sufficient to retain pilots (and others) who have high opportunity cost of continued service. Many are forgoing $25,000 annual bonuses to begin careers in commercial aviation. And, because airlines rely extensively on seniority to allocate privileges, pilots who plan to leave service prefer to do so earlier in their careers. Because it costs between $10-20 million to create an experienced pilot, the Air Force needs to increase compensation or otherwise induce its pilots to stay.

Admiral Moran on retaining talent

The ability to put the quality inside of our calculus and be able to tailor our compensation packages and tailor a compensation approach to retaining talent — we are going to have to do that with this new retirement program,” Chief of Naval Personnel Vice Adm. Bill Moran said. “It starts in fiscal year 2018, two years from this January. We are going to have to be ready to look at it differently.

Competition in educational benefits from civilian employers →

The military may face additional competition from civilian employers who are increasingly willing to pay for their employees' education.

Large companies like the oil giant BP, accounting firm Deloitte, tech behemoth Google, and even food-maker Smuckers either provide discounts to select courses at eligible colleges or cover the full cost of tuition. An employer survey from 2013 found that 61 percent of companies make available some type of tuition-assistance program. Parcel firm UPS offers its employees a $15,000 tuition credit and cut deals with regional colleges in Illinois and Kentucky to provide its workers free courses.

One of the main benefits of military service is access to tuition assistance and the Post 9-11 GI Bill. If other companies offer similar benefits, the military may need to increase compensation in other areas to attract and retain servicemembers.

Data-driven personnel decisions →

The internal, hierarchical military personnel system requires constant attention.

Large-scale data collection and analysis will eventually provide the armed forces with a far richer understanding of their human capital than has ever been available before, paving the path for the services to take a fresh look at the qualifications and skills necessary for commissioning into the military. How we choose our officers will lay the groundwork for the management of the force of the future. Given the challenges that lie ahead, it is something we cannot afford to get wrong.