Background Briefing

Speaker: Well, more will come in. I'm sorry for all the confusion about the timing, but I want to stress that this is a background briefing by a Senior Defense Official because despite his youthful appearance, he certainly is a senior defense official.

Everything we give you here is embargoed until 4:15 this afternoon when the Secretary and the Chairman will make a complete announcement of this -- a formal announcement. This is a chance for him to walk you through the basics of the program and then for you to ask question. Do you have handouts or will they come later?

We will also get you prepared for delivery copies of the Secretary's remarks and the Chairman's remarks. It's all yours.

Senior Defense Department Official: Thanks.

As Ken Bacon said, very shortly, they'll have the handout of the embargoed document. Just a few brief comments and then specifics.

The Secretary, the Chairman, the other members of the Joint Chiefs have been working on a pay compensation package for several months now. They have worked it. It, I think, reflects the issues that they each have encountered in terms of their discussions with troops in the field. But I think it is a very significant package. There are really three pieces to it. And let me say that as we worked together, this is really a collaboration between the Secretary and the Joint Chiefs, between the Joint Staff and OSD.

There are three key pieces to the proposal that the Secretary will be announcing at 4:15. One is across the board pay increases beginning with a 4.4% raise for military personnel in Fiscal Year 2000. For planning purposes, we have a 3.9% pay raise each year in the rest of the FYDP. So that would be 4.4 in '00 and then 3.9 in the out years.

QNot total, 3.9 in each year --

ASay that again?

QI'm sorry.

A4.4 in '00, 3.9, 3.9 is the planning number. Obviously, next year, we'll be here and we'll be assessing where the index is and things like that.

Q (Inaudible)

A'00.

QThrough '05?

AThrough '05.

So the first big piece is the across the board increases. Those will immediately put more dollars into every service member's pocket. We think it will also have a direct impact on retirement pay, which is based on basic pay.

Clearly, we are maximizing all of our specialty pays. We are maximizing all of our bonuses. I think we'll have a major package of specialty pays that will roll out with the rest of the budget. But what we really thought we needed to do was deal with basic pay itself. So the 4.4% is the first step.

The second step is the pay table reform. These are additional increases that will kick in in '00. The pay table reform will have a starting date of July 1, 2000. It is primarily focused for noncommissioned officers and mid-grade officers. Each of our service members makes valuable contributions, but the noncommissioned officers and the mid-grade commissioned officers, as well as the warrant officers, are the individuals who have acquired leadership skills, the technical skills that are extremely valuable to the military and I might also say very much in demand in the private sector. We make a significant investment of tax payer dollars to train and educate these individuals to acquire those skills. And frankly, it's critical to the Department of Defense to maintain that investment. So by adding pay increases directed at selected ranks and years of service, we will improve the incentive to serve a full military career.

How do we come through? One, we're really trying to target, again, NCO's, mid-career officers to compensate them for their experience, for the education they have acquired, for the technical and leadership skills that they have acquired. And additionally, the pay table reform is designed also to reward those who are fast promoters.

Now in the past, pay table reform, while it's been proposed many times, hasn't worked because the reformers have always tried to do it as a zero sum. The pay raise of 4.4 and [in] the out years goes to everybody across the board. And then the pay table reform, which is another investment, again, is targeted. So the across the board raises and the pay raises are really not in competition with each other.

The third piece that is in the Secretary's package is to improve retirement pay. As you know, there are three formulas out there depending upon when an individual enlisted or was commissioned. Two-thirds of the force is now -- came on active duty after August of 1986. They are now making the stay in or get out decisions. The retirement proposal is to essentially change the multiplier to 50% at 20 years. There will be some other initiatives that will go with it in terms of -- to have a COLA that is comparable to the one that is used in other programs of the federal government, particularly FERS. But we think that restoring to 50% plus the across the board pay increase plus the pay reform increase will also enhance the 50% retirement pay because the base on which that pay is calculated will be increased.

So those are the three key positions. The across the board increases for military personnel apply also to the DoD civilians. But those are the three key pieces: the across the board raise, the pay reform and then the retirement reform. These will be detailed in the Secretary's statement. We'll also be passing out copies of the new pay table, the proposed pay table as well as the percentage changes against the Fiscal '99 budget. But we're happy to answer your questions. I'd ask my two colleagues from the Joint Staff and from OSD to join me in answering the questions as well.

QHow much is this going to cost?

AThat's --

QHow's it going to be paid for?

AI'm really not here to give a budget briefing right now other than to say the package is more than $30 billion in the FYDP. It is significant. I would just as soon defer other budget related questions to the presentation of the budget. But it is significant dollars.

Q$30 billion over the six years. Do you expect to ask for that in extra money or do you expect to take it out of other areas to pay for it?

AI don't want to give a budget brief today. These will be fully funded.

Q (Inaudible) it grows over the six years.

ASure, it does.

QIs it zero this year and --

ANot zero, no. It's significant.

QYou can't be more specific about what it would be on a yearly basis?

ATrying to give a personnel brief and not a budget brief.

QBut it's going to rise --

ASay that again.

QWithin your own budget or are you going to get extra money?

AThese initiatives --

QDo they want it out of your hide or do get it from somebody else?

The Joint Chiefs have already said they want $17 to $20 billion to improve readiness and buy new weapons. Is this going to be above that, so you may ask for as much as $47 billion and what else?

AI can say these are fully funded in the budget.

QBut you won't say if it's all extra money or whether some of it would come out of other programs. By fully funded, you don't mean it would be money on top of your current spending. Is that what you're saying? Like saving money on oil or saving money on --

ARight. Those are, yeah, again, I'm not here to give a budget brief.

QWhat I'm saying is, by fully funded, you're not necessarily saying that's it's all extra money. That it may come from other sources.

AI'm saying that these are fully funded in the budget.

QCan we talk about the targeted raises some?

ASure.

QHow much are they, where do they go?

AThey're going to vary anywhere from a half a percent up to extra 5.5% above the 4.4 pay raise that takes effect 1 January 2000. And the way that -- we'll provide copies at the end that show where the cells are. The pay table reform effects every single cell on the pay table regarding length of service or grade. But the range will be from a half percent above 4.4 to 5.5% above 4.4.

QThe biggest raise is going to the mid-grade. So the top is getting some just to prevent decompressions?

ACorrect. Also, looking at the goal, making sure that promotion is rewarded over length of service, but that we still provide uniform and meaningful longevity increases. So we're, in some cases, trying to flatten out longevity to be consistent, but then reward promotion at the promotion points.

QSo for purposes of understanding it, is it a chart because the differences are also by years of service and not just by --

AAs soon as they have the package ready to distribute --

QSo people of a different pay grade may be getting different amounts of raise depending on their years of service?

AThat's correct.

QPercentage wise, not just dollar wise, percentage wise.

APercentage wise equates to dollars. What we will provide you will be a chart that shows each individual element of the pay table, you know, with rank being on one side and years of service across the bottom. And if you cross those to a particular point, it will show you a percentage. And that is the percentage above the 1999 pay levels. We'll also provide you a copy of what the pay table looks like with dollars in it.

QDo you have this with just some compound interest. If a person makes 4.4% more in the first year and then 3.9% of whatever it is the next five years, how much more will they be making at the end of the six years? What percentage more will they be making in the beginning, 20% more?

AAcross the board increases impact everyone. And as those raises are calculated, they are just essentially calculated against the pay table.

QI understand. How much more would a --

ARather than getting in -- I think what's going to be easier, we're going to give you this in two seconds. And I am chagrined that my logistics is not supporting us up here and that you don't have copies so that you could be asking detailed questions.

QI'd like to ask you a question that I've been asking, I guess, for a couple of months. And that's the President, before the troops in Korea and before that to another audience, said that we're going to give you pay raises that will substantially close this gap with private sector wages, which, when this whole thing began, it looked like the services were saying that gap was 13.5%. As I understand it, these pay raises won't close that gap at all for those that are just getting 4.4 because that just keeps up with wage growth in the private sector. The pay gap would stay at about 13.4 is you continue to use ECI. Can you put that in perspective and can you reconcile that with the President's rhetoric that these pay raises are going to substantially close this 13.4% gap?

AI think we really focused on how to better compensate the force, how to reward the force for the acquisition of skills, for training, for the experience that is critical to retention. And so, I think those were the key elements that went into the pay reform. You know, I think that with so many things, you need to look at this as a cumulative and as a comprehensive package, so it's not just simply working a package against any particular percentage, but rather, it's a cumulative package designed to work a number of key issues.

I think perhaps it's useful to look back at the seventh Quadrennial Defense of military compensation. Which first formally and exhaustively went through the debate of why pay reform was in the long term best interest. The officer pay scales were the most out-of-balance, if you will, where over the course of a career, the pay events, promotion or a longevity increase, if you separated out the two kinds of events, 37% of the added dollars occurred by virtue of promotion and the remainder by virtue of longevity. Pay table reform essentially says, we're going to -- it's not exactly reversing it, but you can think of it in turning that around so that the preponderance of dollars added are based upon merit, performance, promotion versus simply being in the service for longer periods of time. And so, the revisions then to the pay cells with the half percent to the 5.5% changes are -- occur across that band, if you will, of expected promotion points for both officers and non-commissioned officers.

QWhat's happened to the pay gap? How will the Defense Department view the pay gap once these pay raises are in?

AI think, again, we've tried to put together a total package, a comprehensive approach, looking at pay reform, across the board raises and retirement. Again, I'm not sure that there's ever any single statistical measure that you should look at. Instead, you should look at a combination of things. Including, obviously, the commercial economy, but also the benefits package, retention rates. So I think that there's a whole formula of issues that you need to be looking at rather than just simply one measurement.

QI'm sorry, I came in late. But are civilians involved in this in the same [way] as the uniformed personnel or is this just regarding uniformed personnel? DoD civilians?

ADoD civilians get the 4.4% as well.

QWhat about the other --

APay reform is a uniquely military issue.

QHow about the 3.9% follow up raises? Do the civilians get that, too, or just the first year?

AYes.

QHow many civilians, I'm sorry, will this effect in a round figure.

ASix to 700,000. I can get you the precise figure.

QDoes retirement effect them in the same way?

AThey're in a different system.

QIs there really a pay gap when benefits are brought in?

AWe keep wanting to find the single statistical measure and I think you have to look --

QWhy not?

ABecause in so many things, you've got to look at a combination of factors. You've got to look at retention issues. You've got to look at allowances and other benefits that are available. So I think you've got to look at things comprehensively and not just simply as isolated single issues.

QAre services still allowed to do things such as the pilot bonuses?

AYes, they are.

QNone of this affects --

ASpecial pay and bonus pays will continue to be used aggressively.

QYou mentioned bonuses earlier. Will this include any bonuses for pilots in the individual services?

AThere already is a bonus for pilots. There are also other specialty pays that the services have requested that will be part of the budget. But again, plan to address those when the budget itself is rolled out.

QWould that be part of this?

ASeparate to this. Again --

Can I go to Pat and then come back to you, Tom?

QTwo things. The mathematics of this, pay table reform is something you do once and once you adjust the relative relationship of all the cells, from there on in the out years, every -- so this is a one time --

AThat's correct.

QSecondly, the general gave us a very interesting example of how talking about relative budget shares is talking about policy. Promotion is more important than mere tenure. All right. Now, without asking you to give us a budget briefing, can you give us a sense as between... across the board, the pay table reform and the retirement stuff, relatively speaking, what's the budget share that each of those components has and does that change over the six years?

AI'd say about 65 to 70% are the across the board increases and about 30% is the pay reform and the retirement reform.

QCan you separate out the last two, ballpark?

ANot at this point.

Tom, I'm sorry, I haven't called on you.

QDid you say the number of people who would receive the additional above the 4.4, do you have ballpark estimate of the 1.4 million?

AThey won't all get it at once, but in the life of a military career, the bulk of them are likely to be impacted by the pay reform.

QHow about on July 1, how many people are going to get a targeted raise, I think is the question here?

AWhy don't we give you that number. Let's get you an exact number on that one.

QWhen's the effective date of the Redux stuff? The retirement, the effective date of the change?

AThe effective date is, nobody can retire under Redux until 2006.

QYou have disability retirees now.

AThere are some disability retire now, under Redux, that is correct.

QSo, are the dates important for those who are getting disability retirements?

ARegarding only the COLA percentage on their annual adjustments, that is true.

QSo what's the date you're asking for is what I'm asking. What date do you want it to become effective.

AI think that remains to be seen as far as when the effective date will actually be once the legislation is crafted.

QYou seem to be walking on eggshells here with regard to the budget dollars. I know the services said this is a priority. They wanted the Redux retirement first, the Joint Chiefs said, then they wanted the pay raise adjustment second. But I don't think they envisioned they'd have to take it out of hide when they said that in September. Nevertheless, has it come back to them that hey, it's your priority, you're taking a lot of this out of hide? Is that, in effect, what's occurred and that's why you're sensitive?

ANo. It's just that there's been a full budget process. There will be a budget that will be rolled out the end of January. I think that the Secretary and the Chairman really wanted to communicate to the force this week in terms of what they could be thinking about.

QFollow up on the words just out of your mouth. You've used specialty bonuses and so on in the past. You really are trying to send a message, aren't you, to everybody in very blunt terms or broad-based terms that it can't be missed that you don't have to sort of analyze the pay table to see. Is that the intent?

AI think what we want to do is to re-establish the fact that our military members have lots of choice. They're very competitive with this kind of economy. They have education; they have training; they have leadership skills. And so, we want to make sure that they know that they're going to be compensated for acquiring those skills and also that the Secretary is very interested in making sure that we have the right incentives for the retention of these key people. I think we're trying to send a clear message that the Chairman and the Secretary have heard many of the issues raised by the people in the field. In fact, they have spent a tremendous amount of their time these last several months really focusing on how do we compensate the force given the key skills that they have, given their importance to our national defense.

QWas all of this -- has there been any consideration given to what kind of effect this might make on retention and recruiting?

AWe think this will have a very positive and significant impact on retention as well as productivity.

QAny idea on the percentage that might be reduced from the people leaving the service?

AWe think it will have a major impact on retention. We'll have some statistical measurements that we can provide later on. We've had some independent analyses done of this that we would be willing to share.

Let me make a suggestion. Once the actual pay tables are available, that these two officials may be available to do some one-on-ones.

QI wondered if you knew what the reaction -- have you spoken with people on the Hill? And are they are going to receive it positively, do you think, or do you expect stiff resistance to the kind of changes particularly in the retirement system...

AI think we've not formally provided them with data. We've obviously been talking back and forth. I think the pay reform will be treated very positively. I think that the retirement reform will also be treated fairly and positively.

QThank, you, sir.

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