Cultural Norms vs. Market Norms →
The Air Force has replaced its cultural norms with market norms. And, it cannot compete with the airlines' market power.
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?
Hearing on Military Pilot Shortage →
Today, the HASC Military Personnel subcommittee heard testimony on the shortage of military pilots. Representative Mike Coffman (@RepMikeCoffman) noted "there needs to be an econometric reevaluation [of bonuses] on an annual basis" to adjust incentives in light of the dynamic commercial market for pilots.
The services are also examining non-pecuniary incentives to entice experienced pilots to remain in service. These include lengthening assignments, reducing adminstrative workload, and offering alternative career paths so pilots can remain in the cockpit.
One novel proposal under development would allow military pilots to take career intermissions and begin civilian aviation careers. This may allow military members to begin to accumulate seniority with an airline prior to leaving military service.
It is unclear how the new Blended Retirement System will affect pilot retention.
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.