United States Government Accountability Office

GAO Report to Congressional Committees

MILITARY 

PERSONNEL 

DOD Needs to 

Establish a Strategy 

and Improve 

Transparency over 

Reserve and National 

Guard Compensation 

to Manage Significant 

Growth in Cost 

June 2007 

 

GAO-07-828 
What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

June 2007

MILITARY PERSONNEL

DOD Needs to Establish a Strategy and 

Improve Transparency over Reserve and 

National Guard Compensation to Manage 

Significant Growth in Cost 

Highlights of GAO-07-828, a report to 

congressional committees 

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 fulltime, active guard and reserve. 

What GAO Recommends

GAO is making recommendations 

to assess the appropriateness of 

the reserve compensation system 

and to improve transparency over 

total reserve compensation costs.

DOD partially concurred with 

GAO’s recommendations. 

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 fulltime, 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.

www.gao.gov/cgi-bin/getrpt?GAO-07-828.

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact John Pendleton 

at (404) 679-1900 or pendletonj@gao.gov. 
Contents 

Letter 1

Results in Brief 5 

Background 9

Cost to Compensate Guard and Reserve Personnel Has Increased 

Significantly Since Fiscal Year 2000 14 

DOD Does Not Know the Extent to Which Its Mix of Compensation 

Is Meeting Its Human Capital Goals 24 

DOD Does Not Have Transparency over Total Costs of Reserve 

Compensation 30

Conclusions 35

Recommendations for Executive Action 36 

Matter for Congressional Consideration 37 

Agency Comments and Our Evaluation 37 

Appendix I Updated Active Duty Compensation Costs 40 

Appendix II Scope and Methodology 43 

Appendix III Pay and Benefits of the Selected Reserve 49 

Appendix IV Comments from the Department of Defense and 

GAO’s Response 59 

GAO Response to Department of Defense’s Technical Comments 67 

Appendix V GAO Contact and Staff Acknowledgments 72 

Related GAO Products 73 

Tables 

Table 1: Types of Compensation for Servicemembers, as of Fiscal 

Year 2007 13 

Page i GAO-07-828 Reserve Compensation
Table 2: Summary of Changes in Reserve Compensation Costs for 

Fiscal Years 2000-2006 20 

Table 3: Summary of Changes in Active Duty Compensation Costs 

for Fiscal Years 2000 and 2006 41 

Figures 

Figure 1: Organizational Chart of the National Guard and Reserve 10 

Figure 2: Total Compensation Cost of Reserve Components, Fiscal 

Years 2000-2006 15 

Figure 3: Per Capita Costs for Part-Time Reservists by 

Compensation Type, Fiscal Years 2000-2006 16 

Figure 4: Per Capita Cost for Full-time Reservists by Compensation 

Type, Fiscal Years 2000-2006 18 

Figure 5: DOD’s Estimated Cost to the Government for TRICARE 

Reserve Select, Fiscal Years 2005-2013 23 

Figure 6: Allocation of Reserve Compensation to Cash, Noncash, 

and Deferred Categories in Fiscal Years 2000 and 2006 25 

Figure 7: Components of Total Reserve Compensation Costs 32 

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Page ii GAO-07-828 Reserve Compensation
United States Government Accountability Office

Washington, DC 20548 

 

June 20, 2007 

Congressional Committees 

Questions about the adequacy of National Guard and reserve 

compensation have been raised as the Department of Defense (DOD) 

increasingly relies on reservists to carry out its military operations 

domestically and abroad. In 1973, when the U.S. military first transitioned 

from a draft to an all-volunteer force, decision makers recognized that 

military pay needed to be increased to a level that was generally 

competitive with the civilian sector.1

 Since then, the amount of military 

pay and benefits has progressively increased for both active duty and 

reserve servicemembers, although the basic structure of military 

compensation remains largely unchanged. DOD provides active duty, 

guard, and reserve servicemembers with a compensation package made up

of cash, such as pay and allowances; noncash benefits, such as education

assistance and health care; and deferred compensation, such as retirement 

pensions and benefits. Guard and reserve servicemembers are generally

eligible for the same pay and allowance system as their active duty 

counterparts.2

 

Since September 2001, the department has called more than 500,000 

reservists to active duty in support of the Global War on Terrorism. Given

that there are few indications that the current use of reserve forces will 

decline in the near future, DOD and Congress have taken steps to enhance 

reserve compensation. For example, Congress expanded health care 

benefits to all reservists and their families and authorized regular 

increases in basic pay and additional education benefits for mobilized 

reservists. In addition, Congress established the Commission on National

Guard and Reserves in the national defense authorization act for fiscal 

 1

The “All-Volunteer pay raise” occurred in 1972, a year before conscription ended. This pay 

raise increased enlisted and officer pay. For example, the pay of an enlisted 

servicemember at the E-2 pay grade increased about 87 percent, while pay for an officer at 

pay grade O-1 increased by about 10 percent. 

2

There are some differences in compensation between reserve and active duty 

servicemembers. For example, reservists and their families do not always live in close 

proximity to military bases, which limits their ability to take advantage of installation-based 

benefits. In addition, eligible reservists receive their retirement annuity at age 60, while 

eligible active duty servicemembers receive their annuity immediately upon retirement. 

Page 1 GAO-07-828 Reserve Compensation
year 20053

 to assess various aspects of the reserves, including 

compensation, and this commission is expected to address compensation 

in its final report due by January 2008. 

DOD also recently explored the need for changing the military 

compensation system when the Secretary of Defense formed an 

independent advisory committee to study compensation in 2005.4

 Of 

particular concern to the department was the growth in entitlement 

spending for things like health care and the appropriateness of the mix of 

in-service and post service compensation. DOD leaders expressed 

concern that rising compensation costs may not be sustainable in the 

future and could crowd out other important investments needed to 

recapitalize equipment and infrastructure. Similarly, the committee’s 

report stated that the current military compensation system is inefficient, 

and made recommendations to modernize the compensation system and 

provide greater flexibility for efficient and effective force management. 

Specifically, the report made recommendations to change the retirement 

system and health benefits. 

Similarly, we expressed concerns about whether the country’s current 

spending trends are both affordable and sustainable in our 2005 report on 

the challenges facing the United States in the 21st century.5

 Given the 

nation’s large and growing long-range fiscal imbalance, we believe it is 

time for a baseline review of all major federal programs and policies, 

including military compensation, to ensure that they are efficiently and

effectively meeting their objectives and are well adapted to 21st century

realities. Many federal programs—such as military compensation—were 

designed decades ago to address challenges of prior eras related to labor 

markets, security conditions, organizational structures, and compensation 

strategies. As a result of the mounting concerns, in 2005 we assessed the 

active duty compensation system and made a number of recommendations 

to improve the transparency, reasonableness, appropriateness, 

 3

Ronald W. Reagan National Defense Authorization Act for Fiscal Year 2005, Pub. L. No. 

108-375, § 513 (Oct. 2004). 

4

Defense Advisory Committee on Military Compensation, The Military Compensation 

System: Completing the Transition to an All-Volunteer Force (Arlington, Va.: Apr. 28, 

2006). 

5

GAO, 21st Century Challenges: Reexamining the Base of the Federal Government, 

GAO-05-352T (Washington, D.C.: February 2005). 

Page 2 GAO-07-828 Reserve Compensation
affordability, and sustainability of the active duty compensation system.6

 

We found that the piecemeal approach to compensation resulted in a lack 

of transparency that created an inability to identify total compensation 

costs and assess how compensation investments are allocated to cash, 

noncash, and deferred compensation. We also reported that the federal

government’s total cost to provide active duty compensation was 

substantial and rising, totaling about $158 billion, which was about 

$112,000 per servicemember in fiscal year 2004. We recently updated 

these costs and found that in fiscal year 2006 the federal government spent 

about $173 billion or about $126,000 per servicemember—an increase of 

about 32 percent from fiscal year 2000. See appendix I for more detailed

information on active duty compensation costs and the allocation of those 

costs to cash, noncash, and deferred compensation. 

We recognize that compensation is an important recruiting and retention

tool, particularly during a time of increased military operations, and any 

proposed changes must be given careful consideration. In light of the 

evolving 21st century realities, under the statutory authority of the 

Comptroller General to conduct evaluations on his own initiative, we 

(1) identified how much it has cost the federal government to provide 

cash, noncash, and deferred benefits 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) assessed the extent to which DOD’s approach to 

reserve compensation provides transparency over total cost to the federal

government. 

In conducting this review, we focused our scope on part-time, drilling 

reservists, and full-time reservists serving in the Active Guard and Reserve 

 6

 GAO, Military Personnel: DOD Needs to Improve the Transparency and Reassess the 

Reasonableness, Appropriateness, Affordability, and Sustainability of Its Military

Compensation System, GAO-05-798 (Washington, D.C.: July 19, 2005). 

Page 3 GAO-07-828 Reserve Compensation
program of the Selected Reserve.7

 We excluded guard and reserve 

members who were mobilized8

 from our cost estimates, because, once 

reservists are mobilized, their compensation costs are paid out of the 

active components’ budgets. Our review included the years from fiscal 

year 2000 through fiscal year 2006 to capture costs prior to the increased 

use of reservists and changes to compensation policy. To identify how 

reservists are compensated and how much it has cost the federal 

government to provide cash, noncash, and deferred compensation, we 

analyzed relevant regulations, legislation, and budget justification books,

and also interviewed appropriate officials at DOD and the Department of 

Veterans Affairs about costs not presented in budgets, such as the accrued 

costs for non-Medicare-eligible retirees’ health care. In addition, we 

calculated the costs of some types of compensation, such as the federal 

income tax advantage. To determine per capita costs, we divided the total 

cost of the part-time population by an adjusted average strength of the 

part-time reservists—which we calculated by subtracting the average

number of mobilized reservists from the average strength for each fiscal 

year. For the full-time reservists, we divided their total cost by their 

average strength. To assess the extent to which DOD’s mix of cash, 

noncash, and deferred compensation helped DOD meet its human capital 

goals, we reviewed applicable directives, policy, and guidance and 

interviewed DOD officials to determine whether the current reserve 

compensation system follows those directives, policy, and guidance. We 

also reviewed DOD directives and guidance as well as federal government 

standards such as the Government Performance and Results Act of 1993. 

To assess the extent to which DOD’s approach provided transparency over 

total costs to the federal government, we reviewed applicable directives, 

 7

 DOD’s Selected Reserve is made up of members from the Army Reserve, Army National 

Guard, Air Force Reserve, Air National Guard, Marine Corps Reserve, and Navy Reserve.

We did not include the Coast Guard Reserve. The Selected Reserve is the first category of 

the reserves that is subject to recall to active duty to augment the active component in time 

of war or national emergency. For this reason, the Selected Reserve has priority for 

training, equipment, and personnel over all other categories of reservists. The Selected

Reserve consists of units and individuals that serve on an “active reserve” status. Unlike 

other categories of the reserves, part-time Selected Reservists are required to maintain 

readiness through scheduled drilling and training, usually 1 weekend a month and 2 weeks 

a year. Full-time Selected Reservists serve as full-time administration and support staff to

the various reserve components. 

8

 Mobilization is the process by which the armed forces are brought into a state of 

readiness for war or national emergency or to support some other operational mission. In

this report, we use the term mobilization to refer to the process of calling up reserve

components for active-duty service. We use the term mobilized reservist to refer to a

reservist who has received orders to active duty. 

Page 4 GAO-07-828 Reserve Compensation
policy, and guidance and interviewed DOD officials to determine whether 

the current reserve compensation system follows those directives, policy, 

and guidance. We reviewed how compensation costs are presented to 

decision makers. To update our previous work on the cost to the federal

government of compensating active duty servicemembers, we 

(1) interviewed appropriate officials, (2) analyzed and compiled data for 

fiscal years 2000 through 2006 from military personnel and operations and 

maintenance budget justification books, (3) estimated the total federal tax 

expenditure for military compensation and the costs of future veterans’ 

benefits for current active duty servicemembers, and (4) requested 

estimates of accrual health care costs for retirees and their dependents 

from DOD’s Office of the Actuary and health care costs for active duty 

servicemembers and their dependents from DOD’s Office of Health Affairs. 

We conducted our review from October 2006 through May 2007 in 

accordance with generally accepted government auditing standards. More 

detailed information on our scope and methodology is provided in 

appendix II.

The total cost to the federal government to provide compensation for parttime and full-time reservists has risen about 47 percent, from about $13.9 

billion in fiscal year 2000 to about $20.5 billion in fiscal year 2006 in 

constant fiscal year 2006 dollars. 9 Most reservists are part time, and their 

per capita total cost, including cash, noncash, and deferred compensation, 

almost doubled, from about $10,100 in fiscal year 2000 to about $19,100 in 

fiscal year 2006. In addition to part-time reservists, the reserve workforce 

includes a small percentage of reservists who work full time, and their per 

capita total compensation cost increased 28 percent, from about $90,100 in 

fiscal year 2000 to about $115,200 in fiscal year 2006.10 Much of this growth

can be attributed to the cost to provide reservists with deferred 

compensation. From fiscal year 2000 to fiscal year 2006, deferred 

Results in Brief 

 9

Unless noted, all costs have been adjusted for inflation and are presented in fiscal year 

2006 constant dollars. To calculate the costs in constant dollars, we used an official DOD

source, the National Defense Budget Estimates for fiscal year 2007, published by the Office 

of the Under Secretary of Defense (Comptroller), for military pay deflators or price indices. 

There are several other potential price indices or deflators that could be used to adjust for 

inflation. Using the other indices would have shown a similar or larger increase in real 

spending for compensation. 

10The per capita costs of full-time reservists are slightly lower than the per capita costs for 

active duty servicemembers, as shown in appendix I. This is because some costs are not

associated with full-time reservists, such as accrual costs for veterans’ benefits or costs for 

installation-based benefits, such as exchanges and family support programs. 

Page 5 GAO-07-828 Reserve Compensation
compensation costs more than tripled, increasing from $1.7 billion to $5.8 

billion. This growth is largely attributed to additional health care benefits

that have been provided for future reserve retirees and their families. For 

example, Congress enhanced retirees’ health care benefits in fiscal year 

2001 by adding health care benefits for life. These increases in cost are 

mainly driven by entitlements that are unlikely to subside at the end of the 

ongoing military operations in Iraq and Afghanistan. For example, DOD 

officials anticipate significant future growth in the cost of noncash 

compensation as a result of the recent expansion of health care benefits 

for reservists and their families, which will provide continuation of health 

coverage as reservists transition on and off of active duty. 

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 a high-quality force, in part, because it lacks an established 

compensation strategy and performance measures to identify the 

appropriate mix of reserve compensation needed to maintain its force. 

The mix of reserve compensation has shifted toward more deferred 

benefits, increasing from 12 percent of total reserve compensation in fiscal 

year 2000 to 28 percent in fiscal year 2006. This increase in deferred 

compensation may not provide the most efficient allocation or the best 

return on the compensation investment. Studies indicate cash is not only 

preferred to noncash and deferred compensation, but it is also a more 

efficient recruiting and retention tool for active duty servicemembers. 11 

Furthermore, fewer than one in four part-time reservists will receive these 

costly deferred benefits, given that about 24 percent of those who join the 

guard and reserve will ultimately earn nondisability retirement pay and 

health care for life. We have previously found that programs, such as 

compensation systems, need performance measures and goals to guide 

decision makers and program policy.12 In addition, DOD’s personnel and 

readiness strategic plan states the importance of identifying requirements 

and tailoring compensation and other programs to achieve objectives and 

 11 John T. Warner and Saul Pleeter, “The Personal Discount Rate: Evidence from Military 

Downsizing Programs,” The American Economic Review (Mar. 2001); Defense Advisory 

Committee on Military Compensation, The Military Compensation System: Completing 

the Transition to an All-Volunteer Force, (Arlington, Va.: Apr. 28, 2006); DOD, 9th 

Quadrennial Review of Military Compensation vol I (Washington, D.C.: May 17, 2002); 

and Commission on the National Guard and Reserves, Strengthening America's Defenses

in the New Security Environment (Mar. 1, 2007). 

12 GAO, A Model of Strategic Human Capital Management, GAO-02-373SP (Washington, 

D.C.: Mar. 15, 2002). 

Page 6 GAO-07-828 Reserve Compensation
of continuously reviewing personnel management.13 In 1979 and again in 

2005, we identified DOD’s lack of a compensation strategy as a problem in 

establishing a basis for evaluating changes to the total compensation 

system.14 Moreover, the situation today is further complicated by the 

frequency of mobilizations in support of the ongoing operations and the 

components’ recent recruiting challenges. Congress and DOD have taken 

a piecemeal approach to military compensation by adding various 

benefits—such as health care—and cash—such as bonuses and increases

to basic pay—to address current recruiting problems and to take care of 

servicemembers over their lifetime. Furthermore, they have not 

adequately considered the appropriateness, affordability, and 

sustainability of the related cost of these additions. Determining the 

return on investment for compensation and the impact of compensation 

on recruiting and retention is not an easy task. However, given that 

reserve compensation is becoming increasingly costly, DOD does not 

know if the additions to the compensation system are appropriate to 

ensure that the reserve components recruit and retain a high-quality 

workforce in sufficient numbers and the federal government has the best

return on investment. DOD officials have stated during testimony before 

Congress that adding deferred compensation, such as TRICARE for life, is 

not their preference. However, until DOD establishes a strategy for its 

compensation system and develops performance measures to evaluate the 

efficiency of compensation tools, DOD and Congress will be unable to 

make informed decisions about which compensation tools and mix will 

provide the best return on investment, be sustainable in the long-term, and 

be effective in recruiting and retaining the future reserve force. 

DOD’s approach to reserve compensation does not provide decision 

makers in Congress and DOD with adequate transparency over total cost 

for providing reserve compensation—including the allocation of costs to 

cash, noncash, and deferred compensation and the total cost of mobilized 

reservists. Despite the fact that sound business practices require adequate 

transparency over investments of resources, there is no single source that 

provides the total cost for reserve compensation. We have also previously 

 13 Under Secretary of Defense for Personnel and Readiness (OUSD—P&R), Strategic Plan, 

FY2006-2011. 

14 GAO, Military Personnel: DOD Needs to Improve the Transparency and Reassess the 

Reasonableness, Appropriateness, Affordability, and Sustainability of Its Military

Compensation System, GAO-05-798 (Washington, D.C.: July 19, 2005); The Congress 

Should Act to Establish Military Compensation Principles, GAO/FPCD-79-11 

(Washington, D.C.: May 9, 1979). 

Page 7 GAO-07-828 Reserve Compensation
reported there is not a single source for active duty compensation costs. 

In fact, reserve compensation costs are found in three different federal 

departments—DOD, the Department of Veterans Affairs, and the 

Department of Treasury. Furthermore, within DOD, compensation costs 

are found in three different budgets—the reserve components’ military 

personnel, active components’ military personnel, and active components’ 

operation and maintenance. For example, specific types of compensation, 

such as basic pay and health care, are located in different budgets, making 

it difficult for decision makers to see the full cost of all the sources of 

compensation provided to reservists. In addition, reservists who were 

mobilized to support the war on terrorism have been paid out of the active 

components’ budgets through supplemental funding during the 

mobilization, which further dilutes decision makers’ ability to see the full

picture of the cost of reserve compensation to the federal government. 

DOD is taking measures to address some of these problems. For example, 

DOD and the services are in the process of implementing a system, known 

as the Defense Integrated Military Human Resources System, to 

consolidate their personnel and pay systems. This consolidation may 

improve transparency by integrating all human resource information for 

active, guard, and reserve personnel of all the services; however, we have 

recently reported that this task is proving to be difficult to complete 

because each service has unique requirements. 15 Nevertheless, DOD has 

no plans to compile into one place, that is readily accessible, the total cost 

for reserve personnel compensation, including mobilized reservists, and 

the allocation of these costs among cash, noncash, and deferred 

compensation. Such a compilation could enable decision makers to 

accurately assess these costs and to manage the total force as well as 

efficiently and effectively make fact-based human capital adjustments. 

Until total cost for reserve compensation is compiled in a transparent and 

easily accessible manner, decision makers will be unable to determine the 

affordability and efficiency of the reserve compensation system. This is 

especially important given the growing fiscal challenges the country faces. 

We are recommending that DOD take steps to assess the appropriateness 

of the reserve compensation system and to improve transparency over 

total reserve compensation costs. In commenting on a draft of this report, 

 15 GAO, Defense Business Transformation: A Comprehensive Plan, Integrated Efforts,

and Sustained Leadership are Needed to Assure Success, GAO-07-229T (Washington, D.C.: 

Nov. 16, 2006); and DOD Systems Modernization: Management of Integrated Military 

Human Capital Program Needs Additional Improvements, GAO-05-189 (Washington,

D.C.: Feb. 11, 2005).

Page 8 GAO-07-828 Reserve Compensation
DOD partially concurred with our recommendations. In response to our 

specific recommendation to develop a compensation strategy and 

performance measures, the department partially concurred and described 

several steps that it had taken including chartering an independent 

commission to review military compensation. In addition, the department 

noted that it has primarily sought cash compensation in recent years, and 

that the increases in deferred compensation were not sought by DOD. In 

response to our recommendation to improve transparency, DOD felt that 

the Office of Management and Budget could more appropriately address 

this recommendation because it has visibility over all parts of the budget. 

We continue to believe that DOD needs an explicit compensation strategy 

and performance measures to better position the department to make 

business case arguments for or against changes to the compensation 

system, and provide fact-based evidence regarding the efficiency of the

allocation of cash, noncash, and deferred compensation. We also continue 

to believe that DOD is in the best position to exercise ownership over total 

compensation costs and, accordingly, should compile and present total 

compensation costs as part of its budget submission. In addition, the 

department provided several technical comments which we have 

incorporated where appropriate. DOD asked that we include these 

technical comments in our report, and our response to them is shown in 

appendix IV. 

DOD’s National Guard and reserve personnel are assigned to the Ready 

Reserve, Standby Reserve, or Retired Reserve.16 At the end of fiscal year 

2006, DOD had approximately 1.1 million guard and reserve members in 

the Ready Reserve. The Ready Reserve is comprised of military members 

of the National Guard and reserve, organized in units, or as individuals, 

Background 

 16We did not include the Standby or Retired Reserve in our study. The Standby Reserve are

not required to perform training, and are not part of units, but make up a pool of trained 

individuals who could be mobilized if necessary to fill needs in specific skills. These 

reservists are either on active or inactive status. Active status refers to those temporarily 

assigned for hardship or other cogent reasons, those not having fulfilled their military 

service obligation or those retained in active status when provided for by law, or those 

members of Congress and others identified by their employers as “key personnel” and who 

have been removed from the Ready Reserve because they are critical to the national

security in their civilian employment. The Inactive Status List is comprised of those 

reservists who are not required by law or regulation to remain in an active program and 

who retain their reserve affiliation in a nonparticipating status, and those who have skills 

which may be of possible future use. The Retired Reserve consists of all reserve officers

and enlisted personnel who receive or are eligible for retired pay on the basis of active duty 

or reserve service. 

Page 9 GAO-07-828 Reserve Compensation
who are subject to recall for active duty to augment the active component

in time of war or national emergency. Figure 1 shows the three 

subcategories that exist within the Ready Reserve: the Selected Reserve, 

the Individual Ready Reserve, and the Inactive National Guard. 

Figure 1: Organizational Chart of the National Guard and Reserve 

Reserve & 

National Guard

Ready 

Reserve

Standby 

Reserve

Retired 

Reserve

Selected 

Reserve

Individual 

Ready 

Reserve

Inactive 

National 

Guard

Active 

Status

Inactive 

Status

Retired 

Status

Source: GAO.

As of fiscal year 2006, the Selected Reserve had a total of about 826,000 

members. The Selected Reserve largely consists of units and individuals 

designated by their respective services that serve in an “active drilling” 

status. These units and individuals are required to maintain readiness 

through scheduled drilling and active duty for training, usually 1 weekend 

a month and 2 weeks a year. They also have priority for training, 

equipment, and personnel over all other categories of reservists. From 

fiscal years 2000 through 2006, about 9 percent of the Selected Reserve 

average strength served in the Active Guard and Reserve program as fulltime reservists. These full-time reservists perform duties associated with 

organizing, administering, recruiting, instructing, or training the various 

reserve components. The Individual Ready Reserve and the Inactive 

National Guard do not currently have these drilling and training 

requirements according to DOD policy and are comprised principally of 

individuals who have had training, previously served in the active 

component or in the Selected Reserve, or have some period of their 

military service obligation remaining.17 These members may voluntarily 

 17 Within the Inactive National Guard, Army National Guard personnel in an inactive status 

not in the Selected Reserve will mobilize with their units if they are attached to a specific 

National Guard unit but do not participate in training activities. In order for these 

personnel to remain members of the Inactive National Guard they must muster once a year 

with their assigned unit. 

Page 10 GAO-07-828 Reserve Compensation
participate in training for retirement points and promotion with or without 

pay. 

DOD’s selected reservists serve in one of six reserve components: the 

Army National Guard, the Army Reserve, the Navy Reserve, the Air 

National Guard, the Air Force Reserve, and the Marine Corps Reserve. 

The Army National Guard and the Air National Guard comprise what is 

known as the National Guard. The National Guard is unique in that it has 

dual missions, both federal and state; when not in federal service, it is 

available for use by the governor as provided by the U.S. Constitution and 

laws of the state. The National Guard is the only military force 

immediately available to a governor in times of emergency, including civil 

unrest and natural or manmade disasters. Under state law, the National 

Guard provides protection of life and property and preserves peace, order, 

and public safety. 

Since the end of the Cold War, the roles and contributions of the reserve 

force have changed. In the post-World War II era, DOD’s reserve operated 

primarily as a strategic force—a force management tool that was rarely 

activated. For example, from 1945 to 1989, reservists were called to active

duty as part of a mobilization by the federal government only four times, 

an average of less than once per decade. Since 1990, reservists have been 

mobilized by the federal government six times, an average of nearly once 

every 3 years. Additionally, since September 11, 2001, reserve forces have

been used extensively to support the Global War on Terrorism. In fact, 

about 500,000 reservists have been mobilized, primarily for contingency 

operations in Afghanistan and Iraq. As a result of the change in use, 

reserve units are becoming more integrated into military operations, 

calling for a new relational model between the active and reserve 

components, which changes the nature of reserve service to an 

operational role for the reserve components and requires more frequent 

mobilizations as well as incorporation into the total force. 

To attract and retain sufficient numbers and quality of guard and reserve 

personnel, DOD provides reserve personnel with a mix of cash, noncash, 

and deferred compensation based on duty status. When in part-time 

drilling status, reservists receive cash compensation or basic pay on a 

prorated basis as well as other cash incentives, such as retention bonuses 

Page 11 GAO-07-828 Reserve Compensation
or special pays for proficiency in an area.18 Part-time reservists are also 

entitled to noncash benefits, such as unlimited access to commissaries, a 

premium-based health care benefit for reservists and their dependents, 

and educational benefits. Lastly, part-time reservists who become 

retirement eligible qualify for retirement benefits including a pension, 

health care for life, and access to installation-based benefits such as 

exchanges. The key difference in deferred benefits between active duty 

servicemembers and part-time reservists is when they become eligible to 

receive these benefits. For example, a part-time reservist becomes eligible 

for a retirement annuity at age 60; in contrast, active duty servicemembers 

become eligible for retirement benefits at any age after completing a 

minimum of 20 years of service. 

Reservists activated for contingency operations are eligible to receive the 

same compensation and benefits as active duty personnel including 

regular military compensation—basic pay, housing and subsistence 

allowances, and the federal tax advantage19—depending on their pay grade 

and years of service—and special and incentive pays. In addition, 

mobilized reservists are eligible for full health care benefits for themselves 

and their dependents. Table 1 illustrates this mix and compares it to the 

compensation provided to active duty servicemembers. In addition, 

appendix III contains more details about the compensation available for 

reserve personnel. 

 18 Part-time reservists’ cash compensation—basic pay and special pays—is based on the 

1/30th rule. That is, the member is entitled to 1/30th of the monthly pay for each day of

duty or period of inactive duty. 

19 Allowances for housing and subsistence are not taxed. In addition, servicemembers who

serve 1 day in a combat zone are eligible to exclude, for tax purposes, all of their pay and 

allowances earned for the month. Officers’ tax exclusion is limited to the highest amount

earned by enlisted personnel plus hostile fire and imminent danger pay. 

Page 12 GAO-07-828 Reserve Compensation
Table 1: Types of Compensation for Servicemembers, as of Fiscal Year 2007 

Reserve part-time in

drill/annual training 

Reserve full-time 

support 

(AGR) Active component

Basic pay X X X 

Housing allowance a X X

Subsistence allowance bX X

Subsistence in kind X X X 

Special and incentive pays X X X 

Bonuses X X X

Clothing allowance X X X 

Permanent change of station travel X X 

Tax advantage (housing and subsistence allowances are 

nontaxable) 

c

X X

TRICARE (health care) X X 

TRICARE Reserve Select Xd

TRICARE Dental X d X X

Veterans Affairs life insurance X X X 

Montgomery GI Bill (education benefit)eX X X

Tuition assistance X X X 

Student loan repayment X X X 

Veterans Affairs home loan XfX X

Commissaries and exchanges X X X 

Morale, welfare, and recreation services Space availablegX X

Family support centers Space available X X 

Child care centers Space available X X 

Legal assistance Space available X X 

Retirement X X X

Veterans Affairs health carehX X X

Disability retirement or separationiX X X

Source: GAO analysis.

a The member is entitled to a housing allowance for annual training, but the rate is provided under 

Basic Allowance for Housing/Reserve Component. In addition, if the annual training period is 31 days 

or more, then the member would receive a housing allowance. 

b

 Part-time enlisted personnel may receive rations-in-kind while drilling. During annual training, 

reservists receive a subsistence allowance. 

c Reservists receive the tax advantage while on annual or active duty training. 

d

 Reservists are eligible to enroll for TRICARE Reserve Select and TRICARE Dental Plan for a 

monthly premium; see appendix III for more details. 

Page 13 GAO-07-828 Reserve Compensation
e

The Department of Veterans Affairs administers this educational benefit; however, the services are 

responsible for the cost of the benefit. 

f Eligibility determined by 2 years of active duty service, not less than 90 days mobilized, or 6 years of 

reserve service. 

g Although eligible, the commander can set priority for active duty servicemembers if the facilities or 

services can not handle the demand. 

h Member qualifies based on service in active military or mobilization. 

i Servicemembers may qualify for both DOD and Veterans Affairs disability retirement. 

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. However, this cost does not include 

all compensation, such as accrual costs for veterans’ benefits.

20 

Cost to Compensate 

Guard and Reserve 

Personnel Has 

Increased 

Significantly Since 

Fiscal Year 2000 

 20 Veterans’ benefits include health care, compensation and pension, education and 

training, vocational rehabilitation, home loans, life insurance, burial benefits, and 

dependents' and survivors’ benefits. Reservists who have served honorably on active duty

establish veteran status and may therefore be eligible for veterans’ benefits including 

health care and monthly compensation, depending on the length of active military service

and other eligibility factors. In addition, reservists who are never called to active duty may 

qualify for some veterans’ benefits such as education, home loan guaranty, vocational 

rehabilitation, disability pension, and life insurance. In the absence of a formal actuarial 

model, we were unable to determine the deferred or accrual costs for reservists’ benefits

provided by the Department of Veterans Affairs. Furthermore, the Veterans Affairs budget

does not distinguish between active and reserve cost, which prevented us from associating 

current noncash costs for programs such as vocational rehabilitation and disability pension 

with reserve compensation. In addition, we decided to associate all installation-based 

noncash benefits (such as commissaries and morale, welfare, and recreation centers) with 

the active components’ compensation costs although reservists are eligible to take

advantage of those benefits. As a result, our compensation cost for reserve and guard 

personnel is likely understated. 

Page 14 GAO-07-828 Reserve Compensation
Figure 2: Total Compensation Cost of Reserve Components, Fiscal Years 2000-2006 

0

5

10

15

20

25

2000 2001 2002 2003 2004 2005 2006

Fiscal year 2006 constant dollars in billions

Fiscal year 

Deferred

Noncash

Cash

Source: GAO.

13.9

16.8 17.0

18.4 18.4 19.0

20.5

Over this same time period, the per capita cost to the federal government 

for part-time drilling reservists21 almost doubled, from about $10,100 in 

fiscal year 2000 to about $19,100 in fiscal year 2006, as shown in figure 3. 

This per capita cost is an average of what it cost the government to 

compensate servicemembers; it is not what the servicemembers “receive 

in their paycheck.” Servicemembers’ individual cash compensation will 

vary significantly depending on individual pay grade and other factors 

such as years of service or if the servicemember has dependents. The 

compensation cost does not include all of the cost needed to support 

 21Part-time, drilling, reservists refer to reserve and National Guard personnel who drill 1 

weekend a month and participate in active duty training for 2 weeks a year. These 

personnel are referred to as pay groups A and B in the services budget justification books,

and they also may participate in special and school training, such as operational, refresher,

and proficiency training. In addition, we included pay groups F and P in our calculations. 

Page 15 GAO-07-828 Reserve Compensation
additional servicemembers, because it does not include those costs 

associated with recruiting and training personnel. 

Figure 3: Per Capita Costs for Part-Time Reservists by Compensation Type, Fiscal 

Years 2000-2006 

0

5

10

15

20

25

2000 2001 2002 2003 2004 2005 2006

Fiscal year 2006 constant dollars in thousands

Fiscal year 

Deferred

Noncash

Cash

Source: GAO.

10.1

13.1

13.9

17.7 17.7

18.6 19.1

This increase in per capita cost occurred during a time when the average

strength of part-time drilling reservists declined by about 6 percent, from 

about 746,400 reservists in fiscal year 2000 to 699,800 reservists in fiscal 

year 2006. This decline in the average number of part-time personnel may 

be attributed to many factors, such as the Navy’s restructuring of its force,

as part of its Active-Reserve Integration process, which reduced the 

number of part-time reservists. Moreover, Army National Guard and Army 

Reserve officials attributed the decline in average strength to their 

recruiting difficulties. 

In addition to part-time reservists, about 9 percent of reservists work fulltime, 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 

Page 16 GAO-07-828 Reserve Compensation
in fiscal year 2006, about 28 percent.22 Although full-time reservists are 

eligible to receive the same compensation as active duty servicemembers, 

the per capita cost for compensation presented here is less than the per 

capita cost for an active duty servicemember. This is because some costs 

were not associated with the full-time reservists, such as accrual costs for 

veterans’ benefits or costs for installation-based benefits, such as 

exchanges and family support programs. This increase is similar to the 

trends in active duty per capita compensation cost (see app. I for similar 

data on active duty servicemembers’ compensation cost). Unlike their 

part-time counterparts, the full-time reservists’ average strength increased 

by about 9 percent during this time period, increasing from about 64,500 in

fiscal year 2000 to 70,300 in fiscal year 2006.23 

 22 Full-time reserve and National Guard personnel are referred to as “Administration and 

Support” in the budget justification books, but are referred to as active guard and reserve 

(AGR) or full-time support (FTS) by some services. These Selected Reservists are on 

active duty or full-time National Guard duty to organize, administer, recruit, instruct, and 

train reserve component members. 

23 The percentage of full-time reservists varies by component. For example, in fiscal year 

2006 the Navy Reserve and the Air National Guard had the highest percentage of full-time 

reservists, about 12 and 18 percent, respectively; while the Air Force Reserve and Marine

Corps Reserve had the lowest percentage, about 3 and 6 percent, respectively. 

Page 17 GAO-07-828 Reserve Compensation
Figure 4: Per Capita Cost for Full-time Reservists by Compensation Type, Fiscal 

Years 2000-2006 

0

25

50

75

100

125

150

2000 2001 2002 2003 2004 2005 2006

Fiscal year 2006 constant dollars in thousands

Fiscal year 

Deferred

Noncash

Cash

Source: GAO.

90.1

97.6

103.3 103.0 106.7

113.2 115.2

The growth in reserve compensation overall is primarily attributed to 

increases in deferred compensation, although cash and noncash 

compensation also increased. 

• Deferred compensation represents more of overall reserve 

compensation costs in fiscal year 2006—increasing from 12 percent in 

fiscal year 2000 to 28 percent in fiscal year 2006. Specifically, deferred 

compensation more than tripled, increasing from 1.7 billion in fiscal 

year 2000 to 5.8 billion in fiscal year 2006. This increase was largely 

due to the increase in new health care benefits for the Medicare-eligible 

population, known as TRICARE for Life.24 Further, DOD estimates that 

TRICARE for Life represented 48 percent of the increase in DOD’s 

 24 In fiscal year 2001, Congress expanded retiree health care coverage to supplement 

Medicare. 

Page 18 GAO-07-828 Reserve Compensation
spending on health care from fiscal years 2000 through 2005.25

Retirement pay accrual26 also contributed to the growth in deferred 

compensation, and its increase was a result of across-the-board 

increases in the basic pay rate. Additionally, in fiscal year 2004 

Congress enhanced disability retirement benefits to allow concurrent 

receipt—simultaneous payment—of DOD retirement pay and 

Department of Veterans Affairs disability benefits. Prior to this 

enhancement, retirees had to decide whether to receive DOD’s full, but 

generally taxable, retirement pay or receive the nontaxable veteran’s 

disability pay, which would reduce or offset dollar-for-dollar DOD’s 

retirement pay. As a result of this expansion of benefits, the Treasury 

Department, through general revenues, was required to cover the 

additional military retirement cost of providing concurrent receipt, 

which was about $251 million in fiscal year 2006. 

• Noncash benefits also increased—about 29 percent—primarily due to 

increased costs for full-time reservists’ health care benefits and 

expanded health care benefits for part-time reservists and their 

families.27 Since fiscal year 2000, noncash benefits have represented 

about 11 percent of overall compensation costs. 

• Cash compensation, including basic pay and enlistment and 

reenlistment bonuses, increased about 19 percent between fiscal years 

2000 and 2006. This increase is largely a result of across-the-board 

increases in basic pay. In addition, the reserve components also 

experienced significant growth in the reserve incentive program. 

Specifically, the costs of reenlistment bonuses increased over 1000 

percent, rising from about $36 million in fiscal year 2000 to almost half 

a billion dollars in fiscal year 2006. Cash compensation decreased from 

76 percent of overall compensation costs in fiscal year 2000 to 61 

percent of cost in fiscal year 2006. 

 25GAO, DOD’s 21st Century Health Care Spending Challenges, GAO-07-766CG

(Washington, D.C.: Apr. 18, 2007). 

26An accrual cost is an estimated future cost for current servicemembers to receive an 

entitled benefit. Accrual accounting methods are used to calculate retirement and 

disability pay and retirement health care benefits. 

27Costs for the Reserve Officers’ Training Corps and Junior Reserve Officers’ Training 

Corps were included in the reserve components budget in fiscal year 2000. In fiscal year 

2006, these costs were moved to the active components budget and slightly offset the 

growth of noncash and cash benefits. 

Page 19 GAO-07-828 Reserve Compensation
Table 2 provides a detailed list of the components of reserve 

compensation and how they have changed from fiscal year 2000 to fiscal

year 2006. 

Table 2: Summary of Changes in Reserve Compensation Costs for Fiscal Years 2000-2006 

Fiscal year 2006 constant dollars 

Components of compensation 

Fiscal 

year 2000 Fiscal year 2006 Percentage change 

Percentage of total 

compensation (Fiscal 

year 2006)

Cash Compensation (in billions) 

Part-Time 

Annual & inactive duty training pay $4.7 $4.2

School and special training pay 1.5 2.0

Other special program pay

a .2 .1

Reserve incentive programs .1 .9

Full-Time 

Pay & allowance 4.5 5.7

Subsistence allowance .04 .04

Tax expenditure .3 .4

Reserve incentive programs .002 .02

Otherb.04 .02

Total cash 10.5 12.5 18.8 61

Noncash benefits (in billions) 

Part-Time 

Education .2 .5

Subsistence-in-kind .1 .08

Clothing & uniforms .3 .2

Health care -- .03

Travel .5 .4

Full-Time 

Subsistence-in-kind .003 .0002

Clothing & uniforms .009 .005

Health care .5 .7

Otherc .1 .2

Total noncash 1.7 2.2 29.1 11

Page 20 GAO-07-828 Reserve Compensation
Fiscal year 2006 constant dollars 

Components of compensation 

Fiscal 

year 2000 Fiscal year 2006 Percentage change 

Percentage of total 

compensation (Fiscal 

year 2006)

Deferred benefits (in billions) 

Part-Time 

Retired pay accrual .5 .9

Department of the Treasury -- .07

Retired health care accrual .09 2.7

Full-Time 

Retired pay accrual .8 1.0

Department of the Treasury -- .2

Retired health care accrual .3 .8

Total deferred 1.7 5.8 245.6 28

Total compensation (in billions) $13.9 $20.5 47.0 

Total part-time per capita $10,100 $19,100 88.5

Total full-time per capita $90,100 $115,200 27.8 

Source: GAO analysis of DOD data. 

Note: Numbers may not total due to rounding. 

a

Includes Reserve Officers’ Training Corps, Health Professions Scholarship program, Medical 

Financial Assistance program, Platoon Leaders Class, Branch Officers Basic Course, Nurse 

Candidate Bonus Program, and Chaplain Candidate program. 

b

Includes $30,000 lump sum bonus and transition benefits. 

c

Includes travel, death gratuities, disability and hospitalization benefits, adoption expenses, and 

federal workplace transportation subsidy. 

 

In addition to calculating reserve compensation cost, we also updated our 

previous work on active duty compensation costs and found those costs 

have also increased, rising from about $131.7 billion to $173.2 billion (32 

percent) from fiscal year 2000 to fiscal year 2006. Cash compensation 

accounted for 48 percent of total active duty compensation costs, while 

noncash and deferred compensation accounted for 21 and 31 percent, 

respectively. In fiscal year 2006, it cost the federal government more than 

$126,000, on average, to provide annual compensation to active duty 

Page 21 GAO-07-828 Reserve Compensation
servicemembers.28 See appendix I for more information on active duty 

compensation cost. When taken together, active and reserve

compensation costs have grown markedly since 2000, and these costs may 

not be sustainable within the context of DOD’s total budgetary needs and 

the nation’s increasing fiscal imbalance. Total military compensation for 

the active and reserve components increased from about $147 billion in 

fiscal year 2000 to $195 billion in fiscal year 2006—about 33 percent. 

Much of these increases in compensation costs are not directly driven by

ongoing operations in Iraq and Afghanistan and, as a result, it is not 

anticipated that the costs will significantly recede after the operations in 

Iraq and Afghanistan subside. While some of the costs are directly related

to the ongoing operations—such as the pay for mobilized reservists and 

enlistment and reenlistment bonuses—most of the significant increases 

were made to basic pay and deferred compensation, such as retirement 

pay and health care for retirees, which will not recede after ongoing 

operations are ended. An example of a recently expanded noncash 

compensation benefit that will not recede after the ongoing military 

operations are completed is the premium-based health care benefit for 

reservists and their dependents known as TRICARE Reserve Select. This 

benefit will provide a continuation of health coverage as National Guard 

and reserve personnel transition on and off of active duty. DOD officials 

anticipate that TRICARE Reserve Select will result in significant future 

growth in the cost of noncash compensation.29 According to DOD 

 28According to DOD, about 95,000 mobilized reservists were paid out of active duty cash 

compensation costs in fiscal year 2006. Our active duty per capita cost estimates do not 

take these mobilized reservists into account, because our per capita costs are based on 

active duty end strength. If you considered these reservists, the average costs to provide

compensation would be lower. 

29In the National Defense Authorization Act for Fiscal Year 2004, Congress established 

TRICARE health care coverage for unemployed reservists or those ineligible for health care 

coverage from their civilian employer. However, this provision was not implemented by

DOD. The Ronald W. Reagan National Defense Authorization Act for Fiscal Year 2005 

included provisions for reservists to receive 1 year of TRICARE standard for each period of 

90 consecutive days served in a contingency operation given that the reservists signed a 

commitment to serve continuously in the Selected Reserve during the covered period. 

When implemented by DOD, the program was called TRICARE Reserve Select. The

National Defense Authorization Act for Fiscal Year 2006 enhanced this coverage by

creating a three-tier system of eligibility, based on the percentage of co-pay. See appendix 

III for further details. The John Warner National Defense Authorization Act for Fiscal Year 

2007 further expanded the program to give access to the benefit to all Selected Reservists 

and eliminated the tiered eligibility system. TRICARE Reserve Select is scheduled to be 

implemented in October 2007. 

Page 22 GAO-07-828 Reserve Compensation
estimates, the cost for this new health care benefit will increase 

dramatically in fiscal year 2008 to about $381 million, and will continue to

increase to about $874 million, about $1,100 per capita, by fiscal year 2013,

as shown in figure 5. DOD estimates that it may be a few years before a 

significant number of reservists enroll in the program. However, if 

enrollment numbers prove higher than DOD estimated, the cost for 

TRICARE Reserve Select may be higher than currently projected. In 

addition, DOD predicts that the cost for health care will consume more 

than 12 percent of its total budget by fiscal year 2015, compared to 7.5 

percent in fiscal year 2005. As a result, service officials have commented 

that the only way to control personnel costs may be to reduce the number 

of personnel. 

Figure 5: DOD’s Estimated Cost to the Government for TRICARE Reserve Select, 

Fiscal Years 2005-2013

0

200

400

600

800

1,000

2005 2006 2007 2008 2009 2010 2011 2012 2013

Nominal dollars in millions

Fiscal year 

Source: DOD.

7 34

127

381

563

714

763

816

874

Moreover, total compensation costs for reservists will likely increase after 

contingency operations subside. According to DOD officials, after 

contingency operations end, the number of drills executed is expected to

increase. Since fiscal year 2001, the number of executed drills and training

decreased for part-time reservists. This decrease is, in part, due to the 

increased number of reservists called to active duty, which has left fewer 

reservists and units available to do their required drills. Although this may 

Page 23 GAO-07-828 Reserve Compensation
not have an impact on the per capita costs of reserve compensation, it 

would drive up overall costs to compensate more part-time reservists. 

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. DOD’s and Congress’ piecemeal approach to reserve 

compensation has created a mix of compensation that has shifted toward 

more deferred compensation, even though this may not be an efficient use 

of resources. In addition, DOD is unable to gauge the efficiency and 

effectiveness of the mix of reserve compensation and its compensation 

tools because it lacks a compensation strategy and performance measures

to assess its mix of compensation. 

DOD and Congress have reacted to the current environment to address 

recruiting and retention problems by adding compensation. 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. Significant 

increases in the frequency and length of mobilizations to Iraq and 

Afghanistan have led to reservists being separated from their families for 

longer periods and potentially experiencing interruptions in their civilian 

careers. In fact, a recent memorandum from the Secretary of Defense 

indicates that reservists should expect to be mobilized on a regular 

cycle—with a goal of 1 year mobilized followed by 5 years nonmobilized. 

This change in utilization of reservists and the components’ recent 

recruiting and retention challenges have corresponded with Congress and 

DOD adding various benefits and types of pay to address recruiting 

problems in some reserve components and to take care of servicemembers 

over their lifetime. For example, the cost of the reserve incentive program, 

which primarily provides discretionary cash bonuses for enlistment and 

reenlistment, increased more than 1,000 percent from fiscal year 2000 to 

fiscal year 2006. According to service officials, this increase was to 

address potential recruiting shortfalls. 

DOD Does Not Know 

the Extent to Which 

Its Mix of 

Compensation Is 

Meeting Its Human 

Capital Goals 

Mix of Reserve 

Compensation Has Shifted 

to Deferred Compensation, 

Which May Not Enable 

DOD to Meet Key Human 

Capital Goals of Recruiting 

and Retention 

The resulting complex accumulation of pays and benefits has shifted the 

mix of reserve compensation toward deferred compensation—that is, the 

promise of future compensation like retirement pay and health care. 

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 shift to deferred compensation has also been observed for 

Page 24 GAO-07-828 Reserve Compensation
active duty compensation costs. See appendix I for more information on 

the active component’s compensation costs. Deferred compensation 

affects the current cost of compensation because funds must be set aside 

today to provide these benefits in the future, over the reservist’s lifetime. 

Figure 6: Allocation of Reserve Compensation to Cash, Noncash, and Deferred Categories in Fiscal Years 2000 and 2006 

Source: GAO.

Fiscal year 2000 Fiscal year 2006

About $13.9 billion or about $10,100 

per part-time reservist and about 

$90,100 per full-time support personnel

11%

28%

61%

About $20.5 billion or about $19,100 

per part-time reservist and about 

$115,200 per full-time support 

12%

12%

76%

Cash 

Noncash 

Deferred 

Cash 

Noncash 

Deferred 

While DOD and Congress have added pays and benefits over the past 6 

years, it is questionable whether there was consideration of the 

appropriateness of the changes, including how the changes compared to 

compensation in the civilian sector, what the efficiency and return of these 

changes would be in terms of meeting the department’s human capital 

goals of recruiting and retention, or whether the compensation changes 

were affordable and sustainable over the long term. DOD defines 

efficiency of its compensation system as paying no higher or lower than 

necessary to fulfill the basic objective of attracting, retaining, and 

motivating the kinds and numbers of servicemembers needed.30 However, 

 30Department of Defense, Office of the Secretary of Defense, Military Compensation 

Background Papers: Compensation Elements and Related Manpower Cost Items, Their 

Purpose and Legislative Backgrounds, 6th ed. (Washington, D.C.: April 2005). 

Page 25 GAO-07-828 Reserve Compensation
this increase in deferred compensation is not necessarily the most efficient 

allocation, nor does it provide the best return on the compensation 

investment. In fact, DOD does not know the most efficient allocation of 

compensation needed to meet its recruiting and retention goals because it

has not evaluated reserve compensation to determine the appropriate mix 

of compensation to attract and retain sufficient numbers of qualified 

personnel. Although the efficiency of noncash and deferred compensation 

is difficult to assess because the value servicemembers place on them is 

highly individualized, studies indicate cash compensation is not only 

preferred to noncash and deferred compensation, but it is also a more 

efficient recruiting and retention tool for active duty servicemembers. In 

our 2005 report on active duty compensation, we stated that it is generally

accepted that some deferred benefits, such as retirement, are not valued

as highly by servicemembers as current cash compensation.31 Cash pay 

today is a far more efficient tool than future cash or benefits for the 

recruiting and retention of active duty personnel. For example, a study 

assessing the military draw down in the early 1990s found that when active 

duty servicemembers were offered a choice of lump-sum cash payments or 

annuities, a vast majority selected the lump-sum payment, even though it 

had considerably less net present value.32 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. 33 More 

specifically, about 24 percent of those who join the guard and reserve will 

ultimately earn nondisability retirement pay and health care for life. 

Typically, deferred and noncash compensation is offered across the board, 

which limits the department’s flexibility to offer incentives, target 

personnel, or turn on and off compensation as it is needed to recruit and 

retain. Moreover, these changes may not be sustainable over the long 

term. Some of the noncash and deferred compensation that have been 

added in response to the department’s recruiting and retention problems 

 31GAO, Military Personnel: DOD Needs to Improve the Transparency and Reassess the 

Reasonableness, Appropriateness, Affordability, and Sustainability of Its Military

Compensation System, GAO-05-798 (Washington, D.C.: July 19, 2005). 

32John T. Warner and Saul Pleeter, “The Personal Discount Rate: Evidence from Military 

Downsizing Programs,” The American Economic Review (March 2001). 

33GAO, Military Personnel: DOD Needs More Data Before It Can Determine if Costly 

Changes to the Reserve Retirement System Are Warranted, GAO-04-1005 (Washington, 

D.C.: Sept. 15, 2004). 

Page 26 GAO-07-828 Reserve Compensation
are inflexible benefits and long-term costs that the department will find 

difficult to stop providing, such as health care for reservists. 

Concerns about the most efficient and effective allocation of 

compensation to meet recruiting and retention goals are increasingly 

important given the recent recruiting and retention challenges the services

have faced. In November 2005, we reported that the reserve components 

were having recruiting and retention challenges, specifically filling certain 

occupation specialties such as military police.34 The Congressional 

Research Service also reported that the reserve components missed 

recruiting goals by 12 to 20 percent in fiscal year 2005.

35 Although the 

Marine Corps Reserve and Air Force Reserve met their 2006 recruiting 

goals, the other reserve components missed their goals. In addition, 

officials expressed concern that the services will have difficulty meeting 

future recruiting goals. The Commission on the National Guard and 

Reserves reported that polling data of young people suggest that the future 

for recruitment remains problematic as the propensity of youth to join the 

military declined from 15 percent in 2005 to 10 percent in 2006.36 In 

addition to a decline in propensity to join the military, according to DOD, 

fewer soldiers leaving active duty are transitioning to the reserves. 

Moreover, the quality of recruits is declining.37 At a time when the nation 

faces an increasing fiscal imbalance, until DOD assesses what the 

appropriate compensation mix should be so that it uses its compensation 

resources in the most efficient manner possible, DOD may be unable to 

sustain these costs and effectively balance the department’s needs for new 

 34GAO, Military Personnel: DOD Needs Action Plan to Address Enlisted Personnel 

Recruitment and Retention Challenges, GAO-06-134 (Washington, D.C.: Nov. 17, 2005); 

Military Personnel: Preliminary Observations on Recruiting and Retention Issues

within the U.S. Armed Forces, GAO-05-419T (Washington, D.C.: Mar. 16, 2005). 

35CRS, Recruiting and Retention: An Overview for FY2005 and FY2006 Results for Active

and Reserve Component Enlisted Personnel (Washington, D.C.: Jan. 26, 2007). 

36Commission on the National Guard and Reserves, Strengthening America’s Defense in

the New Security Environment (Washington, D.C.: March 1, 2007). 

37DOD measures enlisted recruits quality based on two criteria—graduation from high

school and score on the Armed Forces Qualification Test (AFQT). Since fiscal year 1993, 

DOD’s goals for recruit quality have been that at least 90 percent of new recruits must be

high school graduates and at least 60 percent must score above average on the AFQT. CRS 

reported that three of the six reserve components—Army National Guard, Army Reserve,

and Navy Reserve—each missed one of their quality goals in 2006. An increase in waivers 

for past offenses also raises concerns about the quality of new recruits. 

Page 27 GAO-07-828 Reserve Compensation
equipment and personnel while recruiting and retaining the future reserve 

force. 

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. We have previously found that 

programs, such as compensation systems, need performance measures 

and goals to guide decision makers and program policy.38 Moreover, 

DOD’s Personnel and Readiness strategic plan states the importance of 

DOD identifying requirements and tailoring compensation and other 

programs to achieve objectives and continuously reviewing personnel 

management.39 In addition, we have also reported that it is necessary for 

an agency to monitor and evaluate its progress toward its human capital 

goals and the contribution that human capital outcomes have made 

toward achieving program results.40 

The lack of a compensation strategy to guide compensation policy is a 

long-standing problem faced by DOD. We identified the lack of explicit 

compensation principles in 1979 and again in 2005 in our reports on active 

duty compensation.41 Our past reports pointed out that DOD lacks explicit 

compensation principles, which creates challenges in making major 

changes to compensation. The Military Compensation Background Papers 

describe six principles that the compensation system is designed to 

achieve; those principles are: managing manpower, compatibility with the 

level of technology servicemembers employ, equity, effectiveness in war 

and peace, flexibility, and motivation. These principles, however, do not 

provide a clear strategy to guide military compensation policy, as stated in

this excerpt: 

 38GAO, A Model of Strategic Human Capital Management, GAO-02-373SP (Washington,

D.C.: Mar. 15, 2002). 

39Under Secretary of Defense for Personnel and Readiness (OUSD—P&R), Strategic Plan, 

FY2006-2011. 

40GAO, Human Capital: Key Principles for Effective Strategic Workforce Planning, 

GAO-04-39 (Washington, D.C.: Dec. 11, 2003).

41GAO, Military Personnel: DOD Needs to Improve the Transparency and Reassess the 

Reasonableness, Appropriateness, Affordability, and Sustainability of Its Military

Compensation System, GAO-05-798 (Washington, D.C.: July 19, 2005); The Congress 

Should Act to Establish Military Compensation Principles, GAO/FPCD-79-11 

(Washington, D.C.: May 9, 1979). 

Page 28 GAO-07-828 Reserve Compensation
“the relationships between the individual components of compensation and their systemic 

interrelationships as a coherent structure remain largely implicit rather than explicit. 

Virtually every aspect of military activity has explicit doctrines, principles, and practices 

embodied in field manuals, technical manuals, and various joint publications. Military 

compensation is noteworthy in its lack of such an explicit intellectual foundation.” 42

Moreover, DOD does not have performance measures to gauge the 

efficiency of its compensation system or the various compensation tools. 

Performance measures are used to evaluate how closely a program’s 

achievements are aligned with program objectives, and to assess whether 

a program is achieving its intended outcome. DOD and Congress have 

generally increased all types of compensation—adding more benefits 

while increasing bonuses—making it impossible to determine the relative 

value of each of these initiatives. Without these measures DOD does not 

know which of its compensation tools—cash, noncash, or deferred—

works best for recruiting and retaining personnel, and it does not know 

the most effective, efficient mix of compensation. 

Determining the return on investment for compensation and the impact of

compensation on recruiting and retention is not an easy task and should 

be approached with caution. DOD and service officials often point to 

meeting end strength or recruiting and retention goals as evidence that 

compensation is appropriate or working. Although end strength is an 

important indicator, we do not believe it is sufficient alone. Meeting 

recruiting and retention goals does not indicate if the compensation 

system is efficient or yielding the best return on the department’s 

investment. There are numerous other factors, such as the economy, 

ongoing contingency operations, and DOD’s own recruiting and 

advertising program, that also influence the department’s ability to recruit 

and retain servicemembers.43 As a result, DOD does not know if the 

additions to the compensation system—which are becoming increasingly

costly, rising 47 percent from fiscal year 2000 to 2006—are appropriate to 

ensure the reserve components recruit and retain a high-quality workforce 

 42Department of Defense, Office of the Secretary of Defense, Military Compensation 

Background Papers: Compensation Elements and Related Manpower Cost Items, Their 

Purpose and Legislative Backgrounds, 6th ed. (Washington, D.C.: April 2005). 

43DOD, 9th Quadrennial Review of Military Compensation vol I (May 17, 2002); 

Commission on the National Guard and Reserves, Strengthening America's Defenses in

the New Security Environment (Mar. 1, 2007); GAO, Military Recruiting: DOD Needs to 

Establish Objectives and Measures to Better Evaluate Advertising's Effectiveness, 

GAO-03-1005 (Washington, D.C.: Sept. 19, 2003). 

Page 29 GAO-07-828 Reserve Compensation
in sufficient numbers and that the federal government has the best return 

on investment. 

In DOD’s response to this report, the department emphasized that it has 

not sought some of the increases in deferred and noncash compensation 

that Congress has recently given to servicemembers. Also, in our 

discussions with DOD officials, they told us that the department has 

focused on cash compensation in recent years and, in some cases, has 

opposed increases in deferred compensation. For example, the Secretary 

of Defense stated, in May 12, 2004, testimony before the Senate 

Appropriations Defense Subcommittee that, in recent years, Congress has 

often added entitlement-like changes, beyond DOD’s recommendations, 

which concentrated on those who have already served. The Secretary of 

Defense’s statement pointed out the fiscal effects of these decisions by 

stating that entitlements such as TRICARE for life are increasing 

substantially the permanent costs of running the department with only 

modest effect on recruiting and retaining personnel. Nevertheless, DOD 

has not formally assessed the appropriate mix of compensation and has 

not developed a written policy or document that specifies the

department’s overarching strategy for compensation. Until DOD 

establishes a strategy for determining the best mix of cash, noncash, and 

deferred compensation and develops performance measures to evaluate 

the efficiency of compensation tools, DOD and Congress will be unable to 

make informed decisions about which compensation tools will provide the 

best return on investment, be sustainable in the long-term, and be effective 

in recruiting and retaining the future reserve force. 

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. However, today there is no single source where decision 

makers can go to see all the costs of reserve compensation. In addition, 

the cost of mobilized reservists is also not transparent. 

DOD Does Not Have 

Transparency over 

Total Costs of Reserve 

Compensation 

Part of the lack of transparency is due to the fact that about a quarter of 

the costs of reserve compensation fall outside the military personnel 

appropriation for DOD. In fact, costs are located within three federal 

agencies—DOD, Department of Veterans Affairs, and Department of the 

Treasury—depending on the type of compensation and the duty status of 

the reservists—active reserve or mobilized, as shown in figure 7. 

Page 30 GAO-07-828 Reserve Compensation
Furthermore, within DOD, compensation costs are found in four different 

budgets—the reserve components’ military personnel, active components’ 

military personnel, active components’ operation and maintenance, and 

the Defense Health Program. Most of the cash costs—such as basic pay,

allowances, and special pays and incentives—are located in either the 

reserve or active military personnel budgets, depending on whether the 

reservist is mobilized.44 In addition, the reserve military personnel budgets 

combine some cash costs. For example, pays and allowances include such 

costs as retired pay accrual, basic allowance for subsistence, basic 

allowance for housing, and special and incentive pay as authorized. 

Furthermore, some noncash costs are located in the active operation and

maintenance budget and active and reserve military personnel budgets.45

Some of these noncash costs, such as those for commissary and morale, 

welfare, and recreation facility use, are not broken out by active and 

reserve costs because use of these facilities is open to both components. 

Moreover, deferred costs for health care for the Medicare-eligible retirees

and their dependents are found in the Defense Health Program budget, 

while some of the costs for concurrent receipt of disability retirement 

from DOD and Veterans Affairs are found in the Treasury budget.46 

 44The military personnel budgets include such things as basic pay, allowances for housing

and subsistence, special and incentive pays, other allowances, and retired pay accrual. The 

pay and benefits for mobilized reservists are located in the active military personnel 

budget. 

45The operation and maintenance budget includes costs for morale, welfare, and recreation 

programs and commissaries. The Veterans Affairs budget includes costs for the Home Loan

Guaranty program and disability compensation. The military personnel budgets include 

costs for noncash items such as death gratuities and clothing and travel allowances. 

46The Health Affairs budget includes costs for all health care benefits except for health care

for retirees younger than age 65. The Treasury budget includes contributions to retirement 

pay accrual to offset concurrent receipts. 

Page 31 GAO-07-828 Reserve Compensation
Figure 7: Components of Total Reserve Compensation Costs 

- Morale, Welfare, and 

 Recreation programs

- Commissaries

- Defense Health Program

DOD 

Operation 

and 

Maintenance

- Guaranteed Home Loan 

 Program

- Disabiltiy compensation

Department 

of Veterans

Affairs budget

- cash compensation 

- basic pay

- allowance for housing 

DOD 

Military 

Personnel 

(Reserve)

- Contributions to

 retirement pay

 accrual to offset

 concurrent receipts

Department 

of the 

Treasury

- Cash compensation

 for mobilized/activated

 reservists

DOD 

Military 

Personnel

(Active)

- Health care for future

 retirees under 65 and 

 their dependents

- Federal tax expenditure

 resulting from

 nontaxable allowances

Other costs

not located 

in a particular 

budget

Total Reserve Compensation

Total

Total

$$$

Ledger

Ledger

$$$$$$$$

$$$$$$$$

Source: GAO and Art Explosion.

Furthermore, we had to calculate some costs for reserve compensation 

because they were not captured in any budget documents. To do this, 

DOD provided, at our request, the accrual costs for future retirees and 

their dependents. Similarly, we estimated the tax expenditure for the 

Page 32 GAO-07-828 Reserve Compensation
federal government from the nontaxable compensation provided to 

servicemembers.47 We estimated that the cost for tax expenditures for fulltime reservists alone was $436 million in fiscal year 2006. In addition, the 

Department of Veterans Affairs does not calculate the accrual cost for 

veterans’ benefits for reservists and we did not attempt to calculate these 

costs either because reservists are likely to be eligible for the majority of 

these benefits based upon active duty service. In appendix I, we present 

the accrual costs for active duty veterans’ benefits that we calculated 

using data from the 1999 President’s Budget. Comparable information for 

the reserve components was not available. As a result, these costs are 

unknown. This lack of information makes it difficult for decision makers 

to see the full costs of all the compensation pays and benefits provided to 

reservists. 

Transparency over compensation costs is further limited when reservists 

are mobilized because mobilized reservists are paid from active duty 

budgets. Moreover, compensation costs for mobilized reservists are 

difficult to determine within the active components’ budgets, in part, 

because they have been paid out of the supplemental funding the active 

components receive for the global war on terrorism. The absence of 

information about the compensation costs of mobilized reservists further 

dilutes decision makers’ ability to see the full picture of the costs of 

reserve compensation to the federal government. In addition, as 

mobilizations are expected to become a regular part of reservists’ careers, 

these costs will become a part of doing business for the reserves, which 

increases the importance of being able to identify them.48 

DOD is taking measures to address some of these problems. For example, 

DOD required the services to include detailed cost estimates of reserves 

called to active duty in the fiscal year 2007 and 2008 supplemental 

submissions. In addition, DOD is working on a system to consolidate 

 47Retired reservists who are age 60 or older are eligible for the same health care benefits as

their active duty counterparts. Nontaxable compensation refers to the Basic Allowance for 

Subsistence and Basic Allowance for Housing that full-time reservists are eligible to 

receive. 

48Secretary of Defense, Memorandum for Secretaries of the Military Departments, 

Chairman of the Joint Chiefs of Staff, Under Secretaries of Defense, “Utilization of the

Total Force” (Jan. 19, 2007). This memorandum states that the planning objective for 

involuntary mobilization for the Guard and reserves will remain a 1-year mobilized to 5-

year demobilized ratio. However, today’s global demands will require a number of selected 

National Guard and reserve units to be remobilized sooner than this standard. 

Page 33 GAO-07-828 Reserve Compensation
personnel and pay systems for all active and reserve components, known 

as the Defense Integrated Military Human Resources System. This 

consolidation may improve transparency of DOD costs by integrating all 

human resource information for active, guard, and reserve personnel of all 

the services. However, as we reported in 2005 and 2006, this task is 

proving to be difficult to complete.49 We found that the services have 

unique requirements that are limiting the flexibility to consolidate to a 

single solution. Furthermore, service officials told us that this system is 

unlikely to improve transparency over budgeted costs. 

In 2005, we recommended that DOD compile the total costs to provide 

military compensation and communicate these costs to decision makers 

within the administration and Congress. Despite our recommendation, 

DOD has not compiled in one place, that is readily accessible, the total 

costs for active or reserve personnel compensation, including mobilized 

reservists, and the allocation of these costs among cash, noncash, and 

deferred compensation. Such a compilation could enable decision makers 

to accurately assess these costs and to manage the total force as well as 

efficiently and effectively make fact-based human capital adjustments. 

Some steps have been taken to improve transparency and recognition 

appears to be growing about the effect of rising compensation costs. For 

example, the Office of Management and Budget appears to have 

recognized the need for greater transparency over compensation costs. 

For the first time, in its Analytical Perspectives for fiscal year 2008, the 

Office of Management and Budget described the total cost of DOD active 

duty compensation and its allocation to cash, noncash, and deferred 

compensation.50 The Analytical Perspectives document also describes 

significant growth in per capita compensation in recent years. However, 

this analysis is submitted separately, and is part of a more than 400-page

document that accompanies the budget but is not part of the military 

budget submission. In addition, in its February 2007 report on federal 

budget options, the Congressional Budget Office discussed the option of 

 49GAO, Defense Business Transformation: A Comprehensive Plan, Integrated Efforts, and 

Sustained Leadership are Needed to Assure Success, GAO-07-229T (Washington, D.C.: 

Nov. 16, 2006); DOD Systems Modernization: Management of Integrated Military Human 

Capital Program Needs Additional Improvements, GAO-05-189 (Washington, D.C.: Feb.

11, 2005). 

50The Office of Management and Budget, Analytical Perspectives: Budget of the United

States Government, Fiscal Year 2008 (Washington, D.C.: 2007). 

Page 34 GAO-07-828 Reserve Compensation
consolidating military personnel costs in a single appropriation.51 The 

report stated that the consolidation of compensation costs would not only 

provide more complete information about how much money is being 

allocated in support of military personnel, but it would also give DOD 

managers a greater incentive to use resources wisely. 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. 

DOD and Congress have reacted to the dramatic shift from a strategic to 

an operational reserve by adding compensation without adequate 

consideration of how the additions compare with civilian sector 

compensation; whether they are appropriate, affordable, and sustainable 

over the long term; or their return on investment in terms of recruiting and 

retention. Looking forward, DOD officials are concerned about their 

ability to manage personnel costs, because so much of the costs are in 

entitlements—items that managers have little to no control over, such as 

retirement pay and health care. As a result, it is highly questionable 

whether the increasingly costly compensation system is affordable, 

sustainable, and fiscally sound over the long term. This challenge is 

especially acute given the nation’s increasingly constrained fiscal 

environment and DOD’s need to balance its personnel costs with its desire 

for new equipment and infrastructure. Without assessing what the 

appropriate compensation mix should be, DOD will be unable to ensure 

that it uses its compensation resources most efficiently. Moreover, until 

DOD establishes a compensation strategy on which to base changes in 

compensation and performance measures to gauge the efficiency of 

changes to the compensation system, DOD will be unable to use its 

compensation resources in the most effective and efficient manner, which 

ultimately could negatively affect DOD’s ability to recruit and retain a 

highly qualified force in sufficient numbers. 

Conclusions 

In addition to the lack of an underpinning compensation strategy, the lack

of transparency over compensation costs makes it difficult to make factbased decisions about the efficiency and effectiveness of adjustments to 

the compensation system, and in broader terms adjustments to the total 

force. A complete picture of total compensation cost for reserve 

 51Congressional Budget Office, Budget Options (Washington, D.C.: February 2007). 

Page 35 GAO-07-828 Reserve Compensation
personnel includes the costs for those reservists who are mobilized as well 

as the costs for cash, noncash, and deferred compensation. Without an 

inclusive display of all the reserve compensation costs, DOD will not be 

able to determine the magnitude of funding and potential for current 

investments and operations to turn into long-term financial commitments, 

thus prompting real questions about the affordability and sustainability of

the rate of growth in defense spending. Understanding the total cost of 

military compensation can provide DOD and Congress with important 

information as they make assessments on compensation matters, and it 

also allows decision makers to make informed trade-offs among 

competing demands for such things as force structure, equipment 

acquisition, and infrastructure decisions. Moreover, as DOD embraces the 

change in the use of reservists to an operational force mobilized more 

regularly, the traditional use of reservists as “weekend warriors” becomes 

less realistic. In today’s environment reservists will likely be activated 

regularly during their career—and those associated compensation costs 

are likely significant. Taken together, the lack of a compensation strategy,

performance measures, and transparency limits decision makers’ ability to

make fact-based decisions about the appropriateness of the mix and level 

of compensation provided to reservists. 

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: 

Recommendations for 

Executive Action 

• 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. 

Page 36 GAO-07-828 Reserve Compensation
As future changes are considered to pay and benefits for National Guard 

and reserve personnel as well as veterans, Congress should consider the 

long-term affordability and sustainability of these changes, including the 

long-term implications for the deficit and military readiness. 

We provided the Department of Veterans Affairs and DOD a draft of this 

report for review and comment. The Department of Veterans Affairs 

agreed with the statements in the report as they pertain to the department

and had no formal comments on the report. DOD’s comments are 

reprinted in this report as appendix IV. DOD partially concurred with our 

recommendations, but had several technical comments, which we have 

incorporated where appropriate. 

Matter for 

Congressional 

Consideration 

Agency Comments 

and Our Evaluation 

DOD partially concurred with our first recommendation to establish a 

clear compensation strategy and use performance measures to monitor 

and assess the mix of compensation. DOD noted that the department has 

consistently communicated its approach to Congress in Congressional 

testimony and that DOD has sponsored efforts, such as the Defense 

Advisory Committee on Military Compensation, to assess its overarching 

compensation strategy. DOD also pointed out that it has generally not 

sought increases in deferred and noncash compensation, and stated during 

congressional testimony the department’s preference for cash

compensation. We believe that DOD’s argument that Congress has 

mandated changes to compensation that it did not seek further illustrates 

why the department needs to develop an explicit compensation strategy 

and performance measures. As we point out in this report, a 

compensation strategy could be used to underpin the department’s 

compensation decisions and performance measures to track their 

effectiveness. Furthermore, the department would be in a better position 

to make business case arguments for or against changes to its

compensation system, and provide fact-based evidence regarding the 

efficiency of the allocation of cash, noncash, or deferred compensation. 

DOD also partially concurred with our second recommendation to compile 

total costs to provide reserve compensation for both drilling and mobilized 

reservists and communicate those costs to decision makers within the 

administration and Congress. In its response to this report, DOD stated 

that this recommendation may be more appropriate for the Office of 

Management and Budget since the costs extended to multiple federal 

departments. We made a similar recommendation to the department in 

our July 2005 report on active duty compensation. Since our 2005 report,

the Office of Management and Budget published a compilation of active 

Page 37 GAO-07-828 Reserve Compensation
duty compensation costs and the allocation of cost to cash, noncash, and 

deferred compensation in its fiscal year 2008 Analytical Perspectives. In 

addition, the department noted that it has discussed with the Office of 

Management and Budget the possibility of expanding the information to 

include Guard and reserve compensation costs. Such actions represent 

steps in the right direction. However, placing the information in the 400-

plus page Analytical Perspectives document that accompanies the budget 

may not be as effective as an annual budget exhibit included as part of the 

military budget request. While we believe OMB has taken a step in the 

right direction, we continue to believe that DOD is in the best position to 

exercise ownership over total compensation costs and, accordingly, 

should compile and present total compensation costs as part of its budget 

submission. As we stated in our report, lack of transparency over 

compensation costs is, in part, due to the fact that DOD lacks a single 

source to illustrate total compensation costs for drilling, full-time, and 

mobilized reservists. We continue to believe that compilation of costs in a 

single source is an important first step in gaining transparency over total

reserve compensation costs. This type of compilation would provide 

decision makers with a resource to make fact-based decisions about future 

changes to compensation. 

We are sending copies of this report to the appropriate congressional 

committees, the Secretary of Defense, and other interested parties. In 

addition, the report will be available at no charge on GAO’s Web site at 

http://www.gao.gov. If you or your staff have any questions regarding this

report, please contact me at (404)679-1900 or pendletonj@gao.gov. 

Contact points for our Offices of Congressional Relations and Public 

Affairs may be found on the last page of this report. Other staff members 

who made key contributions to this report are listed in appendix V. 

John H. Pendleton 

Acting Director, Defense Capabilities and Management 

Page 38 GAO-07-828 Reserve Compensation
List of Congressional Committees

The Honorable Carl Levin 

Chairman 

The Honorable John McCain 

Ranking Member 

Committee on Armed Services 

United States Senate 

The Honorable Daniel Inouye 

Chairman 

The Honorable Ted Stevens 

Ranking Member 

Subcommittee on Defense 

Committee on Appropriations 

United States Senate 

The Honorable Ike Skelton 

Chairman 

The Honorable Duncan Hunter 

Ranking Member 

Committee on Armed Services 

House of Representatives 

The Honorable John P. Murtha 

Chairman 

The Honorable C.W. Bill Young 

Ranking Member 

Subcommittee on Defense 

Committee on Appropriations 

House of Representatives 

Page 39 GAO-07-828 Reserve Compensation
Appendix I: Updated Active Duty Appendix I: Updated Active Duty Compensation Costs 

Compensation Costs 

We originally reported total active duty compensation costs to the federal 

government in July 2005.1

 This appendix updates the total compensation 

costs in that report. As shown in table 1, adjusted for inflation, the total 

cost for providing active duty compensation increased from about $131.7 

billion to $173.2 billion (32 percent) from fiscal year 2000 to fiscal year 

2006. Cash benefits accounted for 48 percent of total compensation costs, 

while noncash and deferred benefits accounted for 21 and 31 percent, 

respectively. In fiscal year 2006, it cost the federal government more than 

$126,000, on average, to provide annual compensation to active duty 

servicemembers. Three things are important to remember about our 

estimate. First, it is an average of what it cost the government to 

compensate servicemembers, not what the servicemembers “receive in 

their paycheck.” Second, agencies other than Department of Defense 

(DOD), such as the Department of Veterans Affairs, Department of 

Education, and Department of Labor, provide compensation to 

servicemembers, so our estimate includes their appropriated costs. Third, 

the estimate does not include the cost of adding servicemembers, because

it does not include costs for acquiring and training personnel. 

 1

GAO, Military Personnel: DOD Needs to Improve the Transparency and Reassess the 

Reasonableness, Appropriateness, Affordability, and Sustainability of Its Military

Compensation System, GAO-05-798 (Washington, D.C.: July 19, 2005). 

Page 40 GAO-07-828 Reserve Compensation
Appendix I: Updated Active Duty

Compensation Costs 

Table 3: Summary of Changes in Active Duty Compensation Costs for Fiscal Years 2000 and 2006 

Fiscal year 2006 constant dollars 

Components of compensation 

Fiscal year 

2000

Fiscal year 

2006

Percentage

change

Percentage of total compensation

(fiscal year 2006)

Cash (in billions) 

Basic pay $40.8 $48.2 18

Housing allowance 7.7 14.8 92

Subsistence allowance 3.3 3.5 6

Special and incentive pays 3.5 5.2 48

Allowance 2.0 3.2 60

Tax expenditure 6.6 8.5 30

Total cash (in billions) $63.9 83.4 30 48

Total per capita cash 46,559 60,713 30

Noncash benefits (in billions) 

Subsistence in kind 1.3 2.7 111

Othera15.6 17.4 19

Educationb0.4 0.6 63

Health care 9.9 13.6 38

Family housing and barracks 2.4 2.3 (5)

Total noncash (in billions) 29.6 36.6 24 21

Total per capita noncash 21,581 26,721 24

Deferred benefits (in billions) 

Retired pay accrual 13.0 12.7 (2)

Veterans Affairs - health care 8.9 10.5 18

Veterans Affairs- compensation and pension 9.5 11.3 18

Veterans Affairs - other 0.9 1.1 18

Department of the Treasury 0.0 2.4

Health care accrual 5.8 15.3 162

Total deferred (in billions) 38.1 53.3 39 31

Total per capita deferred 27,831 38,806 39

Total compensation (in billions) $131.7 $173.2 32

Total per capita $95,971 $126,239 32

Source: GAO analysis.

Note: The numbers may not total due to rounding. According to DOD, about 95,000 mobilized 

reservists were paid out of active duty cash compensation costs in fiscal year 2006. Our active duty 

per capita cost estimates do not take these mobilized reservists into account because our per capita

costs are based on active duty end strength. The per capita costs to provide compensation would be

lower if these reservists are taken into consideration. 

Page 41 GAO-07-828 Reserve Compensation
Appendix I: Updated Active Duty

Compensation Costs 

a

Includes separation pay, partial dislocation allowance, transportation subsidy, permanent change of 

station, DOD dependents’ education, adoption expenses, savings deposit program, death gratuities, 

survivor benefits, Servicemember Group Life Insurance hazard payments, Veterans Affairs home 

loan guaranty program, other personnel support, special support, Morale Welfare and Recreation, 

commissaries, Social Security tax, unemployment benefits, special compensation, impact aid, and

veterans employment and training. 

b

Includes education, off-duty voluntary education, and servicemember GI bill and certification. 

To calculate the cost to the federal government of compensating active 

duty servicemembers, we interviewed officials from DOD, Department of 

Veterans Affairs, Department of Labor, Department of Education, Office of 

Management and Budget, and the Congressional Budget Office. We 

analyzed and compiled data for fiscal years 2000-2006 from the Army, Air 

Force, Marine Corps, and Navy’s military personnel and operations and 

maintenance budget justification books. We also reviewed and compiled

data from the Department of Veterans Affairs benefits and health care 

budget justification books. To estimate the total federal tax expenditure 

that results from the tax-exempt housing and subsistence allowances 

military personnel receive, we used the National Bureau of Economic 

Research’s TAXSIM Model to simulate tax liabilities under different 

scenarios.2 To estimate health care accrual costs, we used official DOD 

estimates of accrual health care costs for all retirees and their dependents. 

In addition, DOD’s Office of Health Affairs provided us the estimated cost 

of health care for active duty servicemembers and their dependents for 

fiscal years 2004-2006. To calculate the costs of future veterans’ benefits

for current active duty servicemembers, including the costs for health 

care, compensation, pension, and other types of benefits, we used notional 

costs as a percentage of basic pay for accruing and actuarially funding 

Department of Veterans Affairs benefits in the DOD budget. Lastly, we 

used deflators to adjust the budget appropriations into current fiscal year 

2006 dollars. For more detailed information on our methodology, see 

appendix II. 

 2

National Bureau of Economic Research’s TAXSIM Model simulates the U.S. federal income 

tax rules. See Daniel Feenberg and Elisabeth Coutts “An Introduction to the TAXSIM 

Model,” Journal of Policy Analysis and Management, vol. 12, no. 1, 1993, pp. 189-194. 

Page 42 GAO-07-828 Reserve Compensation
Appendix II: Scope and Methodology Appendix II: Scope and Methodology 

To determine how Guard and reserve servicemembers have been 

compensated, we analyzed relevant regulations and legislation since 2000, 

identified changes in compensation policy, and compiled a list of pays and 

benefits for which reservists are currently eligible. We then used 

budgetary data to assign costs to the various pays and benefits of the 

reserve compensation system. This included compiling data for fiscal 

years 2000-2006 from the Army National Guard, Army Reserve, Air 

National Guard, Air Force Reserve, Marine Corps Reserve, and Navy 

Reserve’s military personnel and operation and maintenance budget 

justification books. Within the operation and maintenance justification 

books, we reviewed the budgets of the defense health program; the 

defense commissary agency; the morale, welfare, and recreation activities 

(OP-34 exhibit); and DOD dependent education activity. We also reviewed 

data from the Department of Veterans Affairs benefits and health care 

budget justification books. In addition, we interviewed DOD officials in 

Washington, D.C., from the offices of (1) the Assistant Secretary of 

Defense for Reserve Affairs; (2) the Comptroller within the Office of 

Secretary of Defense; (3) each of the national guard and reserve 

components, excluding the Coast Guard; (4) the Actuary; (5) Health 

Affairs; and (6) the Office of Program Analysis and Evaluation. We also 

interviewed officials from the Department of Veterans Affairs in 

Washington, D.C., the Office of Management and Budget in Washington, 

D.C., and the Congressional Budget Office in Washington D.C. 

All of the associated costs for the reserves could not be found in the 

budgetary exhibits. In some instances, we requested data from the 

appropriate federal agency. For example, the Office of Health Affairs 

provided (1) per capita TRICARE cost estimates for full-time 

administration and support personnel for fiscal years 2004 through 2006; 

(2) cost estimates for TRICARE Reserve Select (TRS) for fiscal year 2005 

and fiscal year 2006; and (3) projected cost estimates for TRS for fiscal 

year 2008 to fiscal year 2013. To calculate the health care cost for full-time 

reservists for fiscal years 2000 through 2003, we relied on our previous 

health care cost estimates for active duty personnel.1

 The Office of the

Actuary provided the costs for the retired health care accrual. Although 

the Department of Veterans Affairs provided assistance, we determined 

that the portion of reserve deferred or acrual cost associated with most 

 1

GAO, Military Personnel: DOD Needs to Improve the Transparency and Reassess the 

Reasonableness, Appropriateness, Affordability, and Sustainability of Its Military

Compensation System, GAO-05-798 (Washington, D.C.: July 19, 2005). 

Page 43 GAO-07-828 Reserve Compensation
Appendix II: Scope and Methodology 

veterans’ programs could not be identified without creating an accrual 

model. 

In other instances, we found it necessary to estimate the cost to the 

federal government. For example, we used the data from the Office of the

Actuary’s Valuation Report to calculate the Department of Treasury’s 

contribution to disability compensation accrual. We also estimated total 

federal tax expenditures that resulted from tax-exempt housing and 

subsistence allowances received by military personnel in 2005 and 2006. 

To do this we estimated the taxes owed by an active duty servicemember 

for every combination of years of service, rank, and family size,2

 with and 

without the tax exemption for housing and subsistence. The number and 

pays of servicemembers were provided by DOD’s Selected Military 

Compensation Tables. Only military income was used to calculate the 

taxes owed.3

 We calculated taxes owed for each group using the National

Bureau of Economic Research’s TAXSIM model, which simulates tax 

liabilities under different scenarios.4

 We calculated the tax expenditure as 

the difference between the taxes owed without the tax exemptions and 

with the tax exemptions. We determined the average tax expenditure for 

active duty servicemembers by computing an average based on the 

number of servicemembers in each category. We applied these results to 

the active duty compensation cost. 

Next, to estimate the percentage difference in tax expenditure between 

active duty and full-time reservists, we computed the ratio of average tax 

expenditure in 2006 based on the distribution of years of service and ranks 

for full-time reservists and active duty servicemembers. When computing 

the taxes owed by reservists, we assumed that the family size of full-time 

reservists was the same as active duty servicemembers of identical rank 

and years of service. Data for reservists were taken from the Official 

 2

The first dependent is assumed to be a spouse. Other dependents are assumed to be

children. 

3

In most cases, including additional income, such as from a spouse, would increase the

marginal tax rate and increase our estimate of the tax expenditure. However, an exception 

might be servicemembers eligible for the Earned Income Tax Credit, where more income

could increase the credit, lower the marginal tax rate, and decrease the size of the tax 

expenditure. 

4

The National Bureau of Economic Research’s TAXSIM Model simulates the U.S. federal 

tax income tax rules. See Daniel Feenberg and Elizabeth Coutts, “An Introduction to the 

TAXSIM Model,” Journal of Policy Analysis and Management, vol. 12, no. 1 (1993), pp. 

189-194. 

Page 44 GAO-07-828 Reserve Compensation
Appendix II: Scope and Methodology 

Guard and Reserve Manpower Strength and Statistics5. We applied these 

results to the compensation cost of full-time reservists. 

Additionally, to estimate future health care costs for the current reserve 

population when they retire, we used official estimates of health care 

accrual costs for servicemembers older than 65 (Medicare eligible) and 

younger than 65 (non-Medicare eligible). DOD’s Office of the Actuary 

provided the per capita normal costs for postretirement medical benefits, 

that is, the present value of the current year's attributed portion of future 

benefits for active personnel and their eligible dependents. The 2000-2002

per capita normal costs were provided by DOD’s Office of the Actuary 

based on data from a report prepared by Milliman USA Consultants and 

Actuaries.6

 Per capita normal costs for 2003 and 2004 were based on data 

from Milliman’s spreadsheets.7

 The 2005 and 2006 per capita normal costs 

come from the DOD Office of the Actuaries’ valuations as of September 30, 

2004, and September 30, 2005, respectively.

Finally, when calculating aggregate costs for the various types of 

compensation, we used military personnel deflators from the National 

Defense Budget Estimates for fiscal year 2007 published by the Office of 

the Under Secretary of Defense (Comptroller) to adjust the budget 

appropriations into current fiscal year 2006 dollars. To aid our analysis, 

we classified the types of compensation into three categories: cash, 

noncash, and deferred. In addition, we classified the reserve service 

population into two categories: full-time and part-time. Our analysis 

produced per capita costs for each category of the population. For the fulltime per capita cost, we used the average strength identified in the military 

personnel budget justification books for the administration and support 

population as the denominator. The average strength, of Pay Groups A 

(reservists assigned to units), B (reservists designated as Individual 

Mobilization Augmentees), F (reservists completing initial entry training), 

 5

 Office of the Assistant Secretary of Defense (Reserve Affairs), Official Guard and 

Reserve Manpower Strengths and Statistics: FY 2006 Summary. 

6

Milliman USA Consultants and Actuaries, Analysis of the U.S. Military's Projected Retiree

Medical Liabilities as of September 30, 1999 (Vienna, VA); Analysis of the U.S. Military's

Projected Retiree Medical Liabilities as of September 30, 2000 (Vienna, VA); Analysis of 

the U.S. Military's Projected Retiree Medical Liabilities as of September 30, 2001 

(Vienna, VA). 

7

Milliman USA Consultants and Actuaries, Analysis of the U.S. Military’s Projected

Retiree Medical Liabilities as of September 30, 2000 (Vienna, VA; March 21, 2002); 

Analysis of the U.S. Military’s Projected Retiree Medical Liabilities as of September 30,

2001 (Vienna, VA; January 21, 2003).

Page 45 GAO-07-828 Reserve Compensation
Appendix II: Scope and Methodology 

and P, located in the military personnel budget justification books was 

adjusted by subtracting the average number of mobilized Select Reservists 

from each fiscal year to approximate the actual number of part-time 

drilling or “active” reservists. This “normalized” strength was used as the 

denominator for the part-time per capita cost. The office of the Assistant 

Secretary of Defense for Reserve Affairs provided assistance with querying

the Contingency Tracking System managed by DOD’s Defense Manpower 

Data Center to identify the monthly number of reservists serving on active 

duty orders for named contingencies by reserve component. To assess the 

reliability of Contingency Tracking System data, we interviewed 

knowledgeable officials about the system and related internal controls, 

and we reviewed our prior work on the reliability of Contingency Tracking 

System data. To assess the reliability of the analysis (monthly deployment 

totals) produced by the Defense Manpower Data Center from the 

Contingency Tracking System, we reviewed the SAS program that 

generated the results. We determined the data we received were reliable

for there intended purpose in this engagement. 

To assess the extent to which DOD’s mix of cash, noncash, and deferred 

compensation helped DOD meet its human capital goals, we reviewed the 

requirements for establishing program objectives and outcome measures 

in federal government standards such as the Government Performance 

and Results Act of 1993 as well as in GAO guidance and strategies for 

human capital management. We reviewed applicable DOD directives, 

policy, and guidance and interviewed DOD officials from each of the 

reserve components, as well as representatives from the Office of the 

Secretary of Defense and Reserve Affairs in Washington, D.C., to assess 

whether DOD had established any strategies for compensation or outcome 

measures to determine the efficiency of its compensation tools. We 

interviewed DOD recruiting and retention officials to determine the extent 

to which compensation is used to attract and retain reserve personnel. 

These interviews were conducted with officials in the U.S. Army 

Accessions Command at Ft. Knox, Kentucky; U.S. Army Retention 

Command at Ft. McPherson, Georgia; and Air National Guard Office of 

Recruiting and Retention in Arlington, Virginia. We also reviewed reports 

done by DOD, the Congressional Research Service, the Commission on the 

National Guard and Reserves, the private sector, and others on recruiting 

and retention of reserve forces as well as commonly accepted economic 

theory. 

To assess the extent to which DOD’s approach provided transparency over 

total costs to the federal government and determine whether DOD 

followed those directives, policy, and guidance, we reviewed how 

compensation costs are presented to decision makers by analyzing the 

Page 46 GAO-07-828 Reserve Compensation
Appendix II: Scope and Methodology 

budget justification books and comparing them to applicable directives, 

policy, and guidance, such as the DOD Financial Management Regulation. 

We also interviewed knowledgeable officials at the National Guard Bureau 

(for the Army and Air National Guard), the Air Force Reserve Budget 

Division, the Army Reserves (Office of the Comptroller), Marine Corps 

Reserves, and Navy Reserve Budget offices in Washington, D.C. to learn 

more about transparency issues. We compared DOD directives and 

guidance to standards such as the Government Performance and Results 

Act and commonly accepted economic theory. 

To calculate the cost to the federal government of compensating active 

duty servicemembers, we interviewed officials from DOD including the 

Office of the Secretary of Defense, Under Secretary for Personnel and 

Readiness’ office of compensation, the Office of the Comptroller within 

the Office of the Secretary of Defense and the Services, the Office of the

Actuary, and Health Affairs all in Arlington, Virginia. In addition, we 

interviewed officials from Department of Veterans Affairs, Department of 

Labor, Department of Education, Office of Management and Budget, and 

the Congressional Budget Office, all in Washington, D.C. 

We examined and compiled data for fiscal years 2000-2006 from the Army, 

Air Force, Marine Corps, and Navy’s military personnel and operations and 

maintenance budget justification books. Within the operations and 

maintenance justification books, we reviewed the Defense Health 

Program, the Defense Commissary Agency, the morale, welfare and 

recreation (OP-34 exhibit), and DOD dependent education activity 

budgets. We also reviewed and compiled data from the Department of 

Veterans Affairs benefits and health care budget justification books. We 

used deflators to adjust the budget appropriations into current fiscal year 

2006 dollars.

To calculate the costs of future veterans’ benefits for current active duty 

servicemembers, including the costs for health care, compensation, 

pension, and other types of benefits, we used notional costs as a 

percentage of basic pay of accruing and actuarially funding Veterans 

Affairs benefits in the DOD budget. The notional cost percentages we 

used were unofficial Office of Management and Budget estimates. These 

estimates were based on the most recent official percentages shown in 

table 12-2 of the 1999 President’s Budget. 

Lastly, all active duty compensation costs are not presented in budgets. As 

a result, we estimated the total federal tax expenditure and our methods 

are described as part of the reserve compensation costs on page 39. We

requested DOD’s Office of the Actuary provide health care accrual costs as

Page 47 GAO-07-828 Reserve Compensation
Appendix II: Scope and Methodology 

described in appendix I. We also requested that DOD’s Office of Health 

Affairs provide health care cost estimates for active duty servicemembers 

and their dependents for fiscal years 2004-2006. We relied on our 

previously calculated active duty health care costs for fiscal years 2000 

through 2003.8

 We conducted our review from October 2006 through May 

2007 in accordance with generally accepted government auditing 

standards. 

 8

GAO, Military Personnel: DOD Needs to Improve the Transparency and Reassess the 

Reasonableness, Appropriateness, Affordability, and Sustainability of Its Military

Compensation System, GAO-05-798 (Washington, D.C.: July 19, 2005).

Page 48 GAO-07-828 Reserve Compensation
Appendix III: Pay and Benefits of the Selected

Reserve 

Part-time Guard and reserve servicemembers 

Compensation

Inactive duty 

training (IDT) 

Active duty for 

training (ADT)

Active duty (other 

than training) for 30 

days or less 

Active duty (other 

than training) for 31 

days or more Full-time support 

Cash compensation

Pay and allowances

Basic pay 1/30 of the monthly 

basic pay rate for 

each IDT period

Amount is 

determined by the 

member’s years of 

service and pay 

grade. 

Amount is 

determined by the 

member’s years of 

service and pay 

grade. 

Amount is 

determined by the 

member’s years of 

service and pay 

grade. 

Amount is 

determined by the 

member’s years of 

service and pay 

grade. 

Basic Allowance for 

Housing 

Not eligible If ADT is 31 days or 

more, the 

servicemember is 

eligible. The amount 

is determined by the 

member’s pay 

grade, location of 

permanent duty 

station, and 

dependent status. 

Not eligible Amount is 

determined by 

member’s pay grade, 

location of 

permanent duty 

station, and 

dependent status. 

Amount is 

determined by 

member’s pay 

grade, location of 

permanent duty 

station, and 

dependent status. 

Basic Allowance for 

Housing/Reserve 

Component 

Not eligible Eligible Eligible Not eligible Not eligible 

Basic Allowance 

Subsistence 

Not eligible 

(Enlisted 

servicemembers 

may receive rationsin-kind) 

Eligible, amount 

depends on if the 

servicemember is an 

officer or enlisted. 

Eligibile, amount 

depends on if the 

servicemember is an 

officer or enlisted. 

Eligible, amount 

depends on if the 

servicemember is an 

officer or enlisted. 

Eligible, amount 

depends on if the 

servicemember is 

an officer or 

enlisted. 

Family Separation 

Allowance 

Not eligible Eligible, limited to 

members with 

dependents during 

permanent change 

station when family 

cannot accompany 

member or 

temporary duty 

status 

(unaccompanied for 

31 days or more). 

Not eligible Eligible, limited to 

members with 

dependents during 

permanent change of 

station when family 

cannot accompany 

member or 

temporary duty 

status 

(unaccompanied for 

31 days or more). 

Eligible, for 

members with 

dependents, if 

member meets

statutory and 

regulatory 

requirements. 

Appendix III: Pay and Benefits of the 

Selected Reserve 

Page 49 GAO-07-828 Reserve Compensation
Appendix III: Pay and Benefits of the Selected

Reserve 

Part-time Guard and reserve servicemembers 

Compensation

Inactive duty 

training (IDT) 

Active duty for 

training (ADT)

Active duty (other 

than training) for 30 

days or less 

Active duty (other 

than training) for 31 

days or more Full-time support 

Tax Benefit Not eligible Housing and 

subsistence 

allowances are

nontaxable benefits. 

In addition, all pay, 

allowances, and 

bonuses earned 

during a month while 

in a combat zone 

and qualified 

hazardous duty area 

for 1day of the 

month are 

nontaxable. 

Officers’ monthly tax 

exclusion of military 

pay earned is 

capped at the 

highest enlisted 

monthly basic pay 

plus $225 for 

hazardous fire and 

Imminent Danger 

Pay (IDP). 

Housing and 

subsistence 

allowances are

nontaxable benefits. 

In addition, all pay, 

allowances, and 

bonuses earned 

during a month while 

in a combat zone and 

qualified hazardous 

duty area for 1day of 

the month are 

nontaxable. Officers’ 

monthly tax exclusion 

of military pay earned 

is capped at the 

highest enlisted 

monthly basic pay 

plus $225 for 

hazardous fire and 

Imminent Danger 

Pay. 

Housing and 

subsistence 

allowances are

nontaxable benefits. 

In addition, all pay, 

allowances, and 

bonuses earned 

during a month while 

in a combat zone and 

qualified hazardous 

duty area for 1day of 

the month are 

nontaxable. Officers’ 

monthly tax exclusion 

of military pay earned 

is capped at the 

highest enlisted 

monthly basic pay 

plus $225 for 

hazardous fire and 

Imminent Danger 

Pay. 

Housing and 

subsistence 

allowances are

nontaxable benefits. 

In addition, all pay, 

allowances, and 

bonuses earned 

during a month

while in a combat 

zone and qualified 

hazardous duty 

area for 1day of the 

month are 

nontaxable. 

Officers’ monthly 

tax exclusion of

military pay earned 

is capped at the 

highest enlisted 

monthly basic pay 

plus $225 for 

hazardous fire and 

Imminent Danger 

Pay. 

Special and incentive paysa

Hostile 

Fire/Imminent 

Danger Pay 

Eligible; however, 

DOD policy states 

that a member shall 

not perform duty in a 

hostile fire/imminent 

danger area 

Eligible, if the 

member meets the 

statutory and 

regulatory 

requirements of the 

pay. 

Eligible, if the 

member meets the 

statutory and 

regulatory 

requirements of the 

pay. 

Eligible, if the 

member meets the 

statutory and 

regulatory 

requirements of the 

pay. 

Eligible, if the 

member meets the 

statutory and 

regulatory 

requirements of the 

pay. 

Hazardous Duty 

Incentive Pay 

Eligible, at 1/30 of 

the authorized rate 

for each IDT period, 

if the member meets 

the statutory and 

regulatory 

requirements of the 

pay, except for fire 

fighters. 

Eligible, if the 

member meets the 

statutory and 

regulatory 

requirements of the 

pay. 

Eligible, if the 

member meets the 

statutory and 

regulatory 

requirements of the 

pay. 

Eligible, if the 

member meets the 

statutory and 

regulatory 

requirements of the 

pay. 

Eligible, if the 

member meets the 

statutory and 

regulatory 

requirements of the 

pay. 

Aviation Career

Incentive Pay 

Eligible, at 1/30 of 

the authorized rate 

for each IDT period, 

if the member meets 

the statutory and 

regulatory 

requirements of the 

pay. 

Eligible, if the 

member meets the 

statutory and 

regulatory 

requirements of the 

pay. 

Eligible, if the 

member meets the 

statutory and 

regulatory 

requirements of the 

pay. 

Eligible, if the 

member meets the 

statutory and 

regulatory 

requirements of the 

pay. 

Eligible, if the 

member meets the 

statutory and 

regulatory 

requirements of the 

pay. 

Page 50 GAO-07-828 Reserve Compensation
Appendix III: Pay and Benefits of the Selected

Reserve 

Part-time Guard and reserve servicemembers 

Compensation

Inactive duty 

training (IDT) 

Active duty for 

training (ADT)

Active duty (other 

than training) for 30 

days or less 

Active duty (other 

than training) for 31 

days or more Full-time support 

Career Enlisted 

Flyers Incentive Pay 

Eligible, at 1/30 of 

the authorized rate 

for each IDT period. 

Eligible, if the 

member meets the 

statutory and 

regulatory 

requirements of the 

pay. 

Eligible, if the 

member meets the 

statutory and 

regulatory 

requirements of the 

pay. 

Eligible, if the 

member meets the 

statutory and 

regulatory 

requirements of the 

pay. 

Eligible, if the 

member meets the 

statutory and 

regulatory 

requirements of the 

pay. 

Foreign Language 

Proficiency Pay 

Eligible, if the 

member meets the 

statutory and 

regulatory 

requirements of the 

pay. 

Eligible, if the 

member meets the 

statutory and 

regulatory 

requirements of the 

pay. 

Eligible, if the 

member meets the 

statutory and 

regulatory 

requirements of the 

pay. 

Eligible, if the 

member meets the 

statutory and 

regulatory 

requirements of the 

pay. 

Eligible, if the 

member meets the 

statutory and 

regulatory 

requirements of the 

pay. 

Submarine Duty 

Incentive Pay 

Eligible, at 1/30 of 

the authorized rate 

for each IDT period, 

if the member meets 

the statutory and 

regulatory 

requirements of the 

pay. 

Eligible, if the 

member meets the 

statutory and 

regulatory 

requirements of the 

pay. 

Eligible, if the 

member meets the 

statutory and 

regulatory 

requirements of the 

pay. 

Eligible, if the 

member meets the 

statutory and 

regulatory 

requirements of the 

pay. 

Eligible, if the 

member meets the 

statutory and 

regulatory 

requirements of the 

pay. 

Diving Duty Special 

Pay 

Eligible, at 1/30 of 

the authorized rate 

for each IDT period, 

if the member meets 

the statutory and 

regulatory 

requirements of the 

pay. 

Eligible, if the 

member meets the 

statutory and 

regulatory 

requirements of the 

pay. 

Eligible, if the 

member meets the 

statutory and 

regulatory 

requirements of the 

pay. 

Eligible, if the 

member meets the 

statutory and 

regulatory 

requirements of the 

pay. 

Eligible, if the 

member meets the 

statutory and 

regulatory 

requirements of the 

pay. 

Special Duty 

Assignment Pay 

Eligible, at 1/30 of 

the authorized rate 

for each IDT period, 

if the member meets 

the statutory and 

regulatory 

requirements of the 

pay. 

Eligible. However, 

the Secretary of the 

military department 

may authorize 

payment only to 

those reservists on 

active duty in excess 

of 180 days. 

Eligible. However, 

the Secretary of the 

military department 

may authorize 

payment only to 

those reservists on 

active duty in excess 

of 180 days. 

Eligible. However, 

the Secretary of the 

military department 

may authorize 

payment only to 

those reservists on 

active duty in excess 

of 180 days. 

Eligible, if the 

member meets the 

statutory and 

regulatory 

requirements of the 

pay. 

Officers Holding 

Positions of Unusual 

Responsibility and of 

Critical Nature

Eligible for officers 

only, for each day of 

duty that meets the 

statutory and 

regulatory 

requirements of the 

pay. 

Eligible for officers 

only, if the member 

meets the statutory 

and regulatory 

requirements of the 

pay. 

Eligible for officers 

only, if the member 

meets the statutory 

and regulatory 

requirements of the 

pay. 

Eligible for officers 

only, if the member 

meets the statutory 

and regulatory 

requirements of the 

pay. 

Eligible for officers 

only, if the member 

meets the statutory 

and regulatory 

requirements of the 

pay. 

Page 51 GAO-07-828 Reserve Compensation
Appendix III: Pay and Benefits of the Selected

Reserve 

Part-time Guard and reserve servicemembers 

Compensation

Inactive duty 

training (IDT) 

Active duty for 

training (ADT)

Active duty (other 

than training) for 30 

days or less 

Active duty (other 

than training) for 31 

days or more Full-time support 

Hardship Duty Pay 

(mission) 

Not eligible Eligible when

assigned to a 

designated mission. 

Eligible when

assigned to a 

designated mission. 

Eligible when

assigned to a 

designated mission. 

Eligible, if the 

member meets the 

statutory and 

regulatory 

requirements for the 

pay. 

Hardship Duty Pay 

(location) 

Not eligible Eligible from the first 

day if assigned

permanently to a 

designated location 

or if assigned 

temporarily to a 

designated location 

for more than 30

consecutive days, 

payable from first 

day. 

Eligible from the first 

day if assigned

permanently to a 

designated location 

or if assigned 

temporarily to a 

designated location 

for more than 30

consecutive days, 

payable from first 

day. 

Eligible from the first 

day if assigned

permanently to a 

designated location 

or if assigned 

temporarily to a 

designated location 

for more than 30

consecutive days, 

payable from first 

day. 

Eligible if the 

member meets the 

statutory and 

regulatory 

requirements for the 

pay. 

Special Pay for

Members of 

Weapons of Mass 

Destruction Civil 

Support Teams 

Eligible at 1/30 of the 

authorized rate for 

each duty day. 

Eligible at 1/30 of 

the authorized rate 

for each duty day. 

Eligible at 1/30 of the 

authorized rate for 

each duty day.

Eligible at 1/30 of the 

authorized rate for 

each duty day.

Eligible at 1/30 of 

the authorized rate 

for each duty day. 

Medical and Dental 

Special Pay 

Not eligible Eligible, medical 

officers are 

authorized 

$450/month and

dental officers 

$350/month. 

Eligible, medical 

officers are 

authorized 

$450/month and

dental officers 

$350/month. 

Eligible Eligible, if the 

member meets the 

statutory and 

regulatory 

requirements of the 

pay. 

Other health care 

professions: 

optometrists; 

psychologists and 

non-physician health 

care providers;

nurse anesthetists 

& veterinarians 

Not eligible Not eligible Not eligible Eligible Eligible, if the 

member meets the 

statutory and 

regulatory 

requirements of the 

pay. 

Bonusesb 

Selected Reserve 

Officer Affiliation 

Bonus 

Eligible for officers 

who agree to fill

critical shortfalls. 

Eligible for officers 

who agree to fill

critical shortfalls. 

Eligible for officers 

who agree to fill

critical shortfalls. 

Eligible for officers 

who agree to fill

critical shortfalls. 

Eligible for officers 

who agree to fill

critical shortfalls; 

however, DOD 

policy prohibits.

Page 52 GAO-07-828 Reserve Compensation
Appendix III: Pay and Benefits of the Selected

Reserve 

Part-time Guard and reserve servicemembers 

Compensation

Inactive duty 

training (IDT) 

Active duty for 

training (ADT)

Active duty (other 

than training) for 30 

days or less 

Active duty (other 

than training) for 31 

days or more Full-time support 

Selected Reserve 

Enlistment Bonus 

Limited to Selected 

Reserve who enlist 

to fill critical 

shortfalls. 

Limited to Selected 

Reserve who enlist 

to fill critical 

shortfalls. 

Limited to Selected 

Reserve who enlist to 

fill critical shortfalls. 

Limited to Selected 

Reserve who enlist to 

fill critical shortfalls. 

Limited to Selected 

Reserve who enlist 

to fill critical 

shortfalls; however, 

DOD policy 

prohibits.. 

Selected Reserve 

Reenlistment Bonus 

Limited to Selected 

Reserve who reenlist 

to fill critical 

shortfalls. 

Limited to Selected 

Reserve who 

reenlist to fill critical 

shortfalls. 

Limited to Selected 

Reserve who reenlist 

to fill critical 

shortfalls. 

Limited to Selected 

Reserve who reenlist 

to fill critical 

shortfalls. 

Limited to Selected 

Reserve who 

reenlist to fill critical 

shortfalls; however, 

DOD policy 

prohibits.. 

$30,000 Lump Sum 

Bonus 

Not eligible Not eligible Not eligible Not eligible Option available to 

Active Guard and 

Reserves with 15 

years of service

who first became a 

member after 

August 1, 1986 and 

elect to accept the 

lump sum bonus 

and to remain under 

the Redux 

retirement plan. 

Noncash 

copensation 

Medical and dental 

carec

Member Medical 

and Dental Benefits 

Eligible for treatment 

of injury, illness or 

disease incurred or 

aggravated in line of 

duty. 

Eligible, if 30 days or 

less, for treatment 

of injury, illness or 

disease incurred or 

aggravated in line of 

duty and if 31 days 

or more it is the 

same as active duty. 

Eligible for treatment 

of injury, illness or 

disease incurred or 

aggravated in line of 

duty. 

Eligible for treatment 

provided at a military 

treatment facility. 

Eligible for 

treatment provided 

at a military 

treatment facility. 

TRICARE Dental 

Program for 

Reserve Component 

members 

Eligible Eligible, if ADT is 30 

days or less; 

however, if ADT is 

31 days or more

then dental care and 

treatment provided 

at a military 

treatmentfacility. 

Eligible Dental care and 

treatment provided at 

a military treatment 

facility. 

Dental care and 

treatment provided 

at military treatment 

facility. 

Page 53 GAO-07-828 Reserve Compensation
Appendix III: Pay and Benefits of the Selected

Reserve 

Part-time Guard and reserve servicemembers 

Compensation

Inactive duty 

training (IDT) 

Active duty for 

training (ADT)

Active duty (other 

than training) for 30 

days or less 

Active duty (other 

than training) for 31 

days or more Full-time support 

Dependent Medical 

Benefits 

Not eligible Eligible, if the 

member is ordered 

to active duty for 

training for 31 days 

or more. 

Not eligible Eligible, at military 

facilities if space is 

available or the

servicemember may 

select from TRICARE 

Standard, Extra, 

Prime or Prime

Remote. 

Eligible, at military 

facilities if space is 

available or the

servicemember 

may select from

TRICARE 

Standard, Extra, 

Prime or Prime

Remote. 

Transitional Health 

Care: Member and 

Dependents 

Not eligible Eligible, for 180 

days, if involuntarily 

separated from

active duty. 

Not eligible Eligible, for 180 days, 

if involuntarily 

separated from

active duty or if

released from active 

duty while serving in 

a contingency 

operation for a period 

of more than 30

days. 

Eligible, for 180 

days, if involuntarily 

separated from

active duty. 

TRICARE Reserve 

Select Tier I: 

Member and 

Dependentsd 

Eligible, if member 

meets eligibility

requirements and 

enrolls, 

Not eligible Not eligible 

TRICARE Reserve 

Select Tier II: 

Member and 

Dependents

Eligible, if member 

meets eligbility 

requirements and 

enrolls. 

Not eligible Not eligible 

TRICARE Reserve 

Select Tier III: 

Member and 

Dependents

Eligible, if member 

meets eligibility

requirements and 

enrolls. 

Not eligible Not eligible 

TRICARE Dental 

Program for 

Dependents 

Eligible Eligible Eligible Eligible Eligible 

Installation-based 

benefits (availability 

limited by 

geographic location) 

Commissary 

Privileges 

Unlimited Unlimited Unlimited Unlimited Unlimited

Post Exchange 

Privileges 

Unlimited Unlimited Unlimited Unlimited Unlimited

Morale, Welfare, 

Recreation Services 

Eligible, however, 

may have limited 

availability for 

various services. 

Eligible, however, 

may have limited 

availability for 

various services. 

Eligible, however, 

may have limited 

availability for various 

services. 

Eligible, however, 

may have limited 

availability for various 

services. 

Eligible, however, 

may have limited 

availability for 

various services. 

Page 54 GAO-07-828 Reserve Compensation
Appendix III: Pay and Benefits of the Selected

Reserve 

Part-time Guard and reserve servicemembers 

Compensation

Inactive duty 

training (IDT) 

Active duty for 

training (ADT)

Active duty (other 

than training) for 30 

days or less 

Active duty (other 

than training) for 31 

days or more Full-time support 

Family Support

Centers 

Eligible for some 

services but not all. 

Eligible Eligible Eligible Eligible

Child Care Centers Eligible, however, 

may have limited 

availability. 

Eligible, but 

availability of space 

may be limited.

Eligible, but 

availability of space 

may be limited.

Eligible, but 

availability of space 

may be limited.

Eligible, but 

availability of space 

may be limited.

Space Required

Travel 

Eligible to travel 

between the 

member’s home and 

place of training. 

Eligible Eligible Eligible Eligible

Space Available 

Travel 

Eligible for the 

member only within 

the continental

United States of 

America. 

Eligible for the 

member and 

dependents to all 

locations. 

Eligible for the 

member and 

dependents to all 

locations. 

Eligible for the 

member and 

dependents to all 

locations. 

Eligible for the 

member and 

dependents to all 

locations. 

Legal Assistance Usually limited to 

services that are 

associated with

military 

requirements. 

Subject to the 

availability of legal 

staff resources.

Subject to the 

availability of legal 

staff resources.

Subject to the 

availability of legal 

staff resources.

Subject to the 

availability of legal 

staff resources.

Insurancee

Servicemember 

Group Life 

Insurance 

Selected Reserve 

members are 

automatically 

enrolled and may 

decline coverage. 

Selected Reserve 

members are 

automatically 

enrolled and may 

decline coverage. 

Coverage continues 

or eligible to enroll. 

Coverage continues 

or eligible to enroll. 

Coverage continues 

or eligible to enroll. 

Servicemember 

Group Life 

Insurance Family 

Coverage 

Eligible, if the 

member is enrolled 

in Servicemember 

Group Life 

Insurance. 

Eligible, if the 

member is enrolled 

in Servicemember 

Group Life 

Insurance. 

Eligible, if the 

member is enrolled in 

Servicemember 

Group Life Insurance.

Eligible, if the 

member is enrolled in 

Servicemember 

Group Life 

Insurance. 

Eligible, if the 

member is enrolled 

in Servicemember 

Group Life 

Insurance. 

Traumatic Injury 

Protection Program 

Selected Reservists 

are automatically 

enrolled if the 

reservist has 

Servicemember 

Group Life Insurance 

coverage. 

Selected Reservists 

are automatically 

enrolled if the 

reservist has 

Servicemember 

Group Life 

Insurance coverage. 

Selected Reservists 

are automatically 

enrolled if the 

reservist has 

Servicemember 

Group Life Insurance 

coverage. 

Selected Reservists 

are automatically 

enrolled if the 

reservist has 

Servicemember 

Group Life Insurance 

coverage. 

Automatically 

enrolled if the 

reservist has 

Servicemember 

Group Life 

Insurance 

coverage. 

Leave

Accumulation of 

Leave 

Not eligible Eligible, if ADT is 31 

days or more. 

Not eligible Eligible Eligible 

Page 55 GAO-07-828 Reserve Compensation
Appendix III: Pay and Benefits of the Selected

Reserve 

Part-time Guard and reserve servicemembers 

Compensation

Inactive duty 

training (IDT) 

Active duty for 

training (ADT)

Active duty (other 

than training) for 30 

days or less 

Active duty (other 

than training) for 31 

days or more Full-time support 

Payment for Unused

Leave 

Not applicable. Eligible, if ADT is 31 

days or more. Up to 

60 days in career. If 

on ADT for more 

than 30 days but 

less than 365 days, 

may sell unused

leave in excess of 

the 60-day career 

limit. 

Not eligible Eligible, up to 60 

days in career, but if 

on active duty for 

more than 30 days 

but less than 365 

days, may sell 

unused leave in

excess of the 60-day 

career limit. 

Eligible, up to 60 

days in career.

Education

Montgomery GI Bill 

– Selected Reservef

 

Requires a 6-year 

Selected Reserve 

service agreement. 

Requires a 6-year 

Selected Reserve 

service agreement. 

Requires a 6-year 

Selected Reserve 

service agreement. 

Requires a 6-year 

Selected Reserve 

service agreement. 

Requires a 6-year 

Selected Reserve 

service agreement. 

Montgomery GI Bill 

Kicker 

Enlisted must be or 

have been 

Montgomery GI BillSelected Reserve 

eligible and serve in 

a critically 

undermanned skill. 

Member must agree

to a 6-year service 

obligation. 

Enlisted must be or 

have been 

Montgomery GI BillSelected Reserve 

eligible and serve in 

a critically 

undermanned skill. 

Member must agree

to a 6-year service 

obligation. 

Enlisted must be or 

have been 

Montgomery GI BillSelected Reserve 

eligible and serve in 

a critically 

undermanned skill. 

Member must agree

to a 6-year service 

obligation. 

Enlisted must be or 

have been 

Montgomery GI BillSelected Reserve 

eligible and serve in 

a critically 

undermanned skill. 

Member must agree

to a 6-year service 

obligation. 

Enlisted must be or 

have been 

Montgomery GI BillSelected Reserve 

eligible and serve in 

a critically 

undermanned skill. 

Member must agree

to a 6-year service 

obligation. 

Reserve Officers 

Training Corps

Scholarship

Program 

Scholarship program 

for Reserve Officers 

Training Corps

participants. 

Scholarship program 

for Reserve Officers 

Training Corps

participants. 

Scholarship program 

for Reserve Officers 

Training Corps

participants. 

Scholarship program 

for Reserve Officers 

Training Corps

participants. 

Not eligible. 

Armed Forces 

Health Professions 

Stipend Program

Restricted to officers 

in designated health 

professions with

obligatory periods of 

military training. 

Restricted to officers 

in designated health 

professions with

obligatory periods of 

military training. 

Restricted to officers 

in designated health 

professions with

obligatory periods of 

military training. 

Restricted to officers 

in designated health 

professions with

obligatory periods of 

military training. 

Restricted to 

officers in 

designated health 

professions with

obligatory periods 

of military training. 

The Loan 

Repayment Program 

Enlistment incentive Enlistment incentive. Enlistment incentive Enlistment incentive. Enlistment incentive 

Tuition Assistance Available to Selected 

Reservist members 

of the Army National 

Guard and Army 

Reserve. 

Eligible, but an

officer must agree to 

serve on active duty 

or full-time National 

Guard duty, unless 

waived by the 

Secretary 

concerned. 

Eligible , but an

officer must agree to 

serve on active duty 

or full-time National 

Guard duty, unless 

waived by the 

Secretary concerned.

Eligible , but an

officer must agree to 

serve on active duty 

or full-time National 

Guard duty, unless 

waived by the 

Secretary concerned. 

Eligible , but an

officer must agree 

to serve on active 

duty or full-time

National Guard

duty, unless waived 

by the Secretary

concerned. 

Page 56 GAO-07-828 Reserve Compensation
Appendix III: Pay and Benefits of the Selected

Reserve 

Part-time Guard and reserve servicemembers 

Compensation

Inactive duty 

training (IDT) 

Active duty for 

training (ADT)

Active duty (other 

than training) for 30 

days or less 

Active duty (other 

than training) for 31 

days or more Full-time support 

Reserve Educational 

Assistance Program 

Eligible upon 

completion of 90

consecutive days of 

active service in 

support of a 

contingency 

operation. 

Eligible upon 

completion of 90

consecutive days of 

active service in 

support of a 

contingency 

operation. 

Eligible upon 

completion of 90

consecutive days of 

active service in

support of a 

contingency 

operation. 

Eligible upon 

completion of 90

consecutive days of 

active service in

support of a 

contingency 

operation. 

Eligible upon 

completion of 90

consecutive days of 

active service in 

support of a 

contingency 

operation. 

Other

Clothing Allowance Initial allowance paid 

to enlisted who are 

not issued clothing 

and officers at the 

beginning of their 

service. 

Initial allowance paid 

to some enlisted and 

officers at the 

beginning of their 

service. 

Initial allowance paid 

to enlisted some and 

officers at the 

beginning of their 

service. 

Some enlisted, and 

officers called to 

active duty for more 

than 90 days may 

receive an extra 

clothing allowance. 

Eligible 

Transportation 

Incentive Program 

Not eligible Not eligible Eligible Eligible Eligible 

Permanent Change 

of Station Travel 

Not eligible Not eligible Not eligible Eligible if orders are 

for 20 weeks or

more. 

Eligible 

Veterans AffairsHome Loan g Eligible, if completed

6 years of honorable 

reserve service. 

Eligible, if completed

6 years of honorable 

reserve service. 

Eligible, if completed

6 years of honorable 

reserve service. 

Eligible, if completed

6 years of honorable 

reserve service. 

Eligible 

Deferred compensation 

Reserve retirement Must earn 50 

participation points 

per year for a 

minimum of 20

years. Eligible to 

receive pay and 

health care at age 

60. 

Must earn 50 

participation points 

per year for a 

minimum of 20

years. Eligible to 

receive pay and 

health care at age 

60. 

Must earn 50 

participation points 

per year for a 

minimum of 20 years. 

Eligible to receive 

pay and health care 

at age 60. 

Must earn 50 

participation points 

per year for a 

minimum of 20 years. 

Eligible to receive 

pay and health care 

at age 60. 

Must have a 

minimum of 20

qualifying years to 

be eligible for 

retirement pay and 

benefits. 

Retirement or 

Separation for 

Disabilityh 

Eligible, if the 

disability was 

incurred or 

aggravated in the 

line of duty while: 

performing inactive 

duty training (IDT), 

traveling directly to 

or from the IDT site, 

remaining overnight 

immediately before 

or between 

successive IDT

periods. 

Eligible, if the 

disability was 

incurred or 

aggravated in the 

line of duty. 

Eligible, if the 

disability was 

incurred or 

aggravated in the line 

of duty. 

Eligible, if the 

disability was 

incurred or 

aggravated in the line 

of duty. 

Eligible, if the 

disability was 

incurred or 

aggravated in the 

line of duty. 

Page 57 GAO-07-828 Reserve Compensation
Appendix III: Pay and Benefits of the Selected

Reserve 

Part-time Guard and reserve servicemembers 

Compensation

Inactive duty 

training (IDT) 

Active duty for 

training (ADT)

Active duty (other 

than training) for 30 

days or less 

Active duty (other 

than training) for 31 

days or more Full-time support 

Veterans AffairsHealth care Generally not eligible 

unless member

qualifies based on 

service in active 

military or 

mobilization for a 

contingency 

operation. 

Generally not 

eligible unless 

member qualifies 

based on service in 

active military or 

mobilization for a 

contingency 

operation. 

Generally not eligible 

unless member

qualifies based on 

service in active 

military or 

mobilization for a 

contingency 

operation. 

Generally not eligible 

unless member

qualifies based on 

service in active 

military or 

mobilization for a 

contingency 

operation. 

A member qualifies 

based on active

duty status. 

Source: GAO analysis.

Note: Current through fiscal year 2006. 

a

Special and incentive pays are intended to compensate members for more hazardous conditions 

than usually experienced in peacetime and provide incentives for certain career fields that would 

otherwise experience manpower shortfalls. 

b

Bonuses are intended to provide services with a flexible tool for targeting particular skills and 

address critical manpower shortfalls. 

c

There are a variety of programs offering varying levels of coverage depending on duty status and 

enrollment. 

d

The John Warner National Defense Authorization Act for Fiscal Year 2007 authorized the 

enhancement of TRICARE Reserve Select by making all Selected Reserve members and 

dependents eligible for the program at 28 percent of the premium. The change to the program is 

scheduled to take effect by October 2007. 

e

The insurance programs listed are supervised by the Department of Veterans Affairs. Enrollment in 

the programs requires the payment of a premium. The insurance may be bought in increments of

$50,000 up to a maximum of $400,000. Children are insured at $10,000 at no additional cost. Up to 

$100,000 coverage can be purchased for a spouse. Traumatic injury insurance provides immediate 

financial assistance to traumatically injured servicemembers so their families can travel to be with 

them during an often extensive recovery and rehabilitation process. Payments range from $25,000 to

$100,000 depending on the type and severity of injury. 

f

Unlike Montgomery GI Bill-Active Duty, for reservists meeting the eligibility requirement, the benefit is

automatic and the members are not required to make a payment. The Montgomery GI Bill-Reserve 

Component benefit amount is smaller than the Montgomery GI Bill –Active Duty benefit. 

g

The majority of reservists have prior service in the active component. Since fees for active duty 

applications are lower than reserve applications, reservists with active duty prior service usually apply 

based on their prior active duty service. 

h

Both DOD and Veterans Affairs provide disability compensation. Since 2005, disabled veterans have

been eligible to receive disability compensation from Veterans Affairs and disability retirement from 

DOD. 

Page 58 GAO-07-828 Reserve Compensation
Appendix IV: Comments from the Department Appendix IV of Defense and GAO’s Response : Comments from the 

Department of Defense and GAO’s Response 

Page 59 GAO-07-828 Reserve Compensation
Appendix IV: Comments from the Department 

of Defense and GAO’s Response

Page 60 GAO-07-828 Reserve Compensation
Appendix IV: Comments from the Department 

of Defense and GAO’s Response

See comment 1. 

Page 61 GAO-07-828 Reserve Compensation
Appendix IV: Comments from the Department 

of Defense and GAO’s Response

See comment 2. 

See comment 3. 

Page 62 GAO-07-828 Reserve Compensation
Appendix IV: Comments from the Department 

of Defense and GAO’s Response

See comment 4. 

See comment 5. 

See comment 6. 

See comment 7. 

See comment 8. 

Page 63 GAO-07-828 Reserve Compensation
Appendix IV: Comments from the Department 

of Defense and GAO’s Response

See comment 9. 

See comment 10. 

See comment 11. 

See comment 12. 

See comment 13 

See comment 8. 

See comment 8. 

See comment 8. 

See comment 14. 

See comment 15. 

Page 64 GAO-07-828 Reserve Compensation
Appendix IV: Comments from the Department 

of Defense and GAO’s Response

See comment 8. 

See comment 24. 

See comment 8. 

See comment 16. 

See comment 8. 

See comment 17. 

See comment 18. 

See comment 19. 

See comment 8. 

Page 65 GAO-07-828 Reserve Compensation
Appendix IV: Comments from the Department 

of Defense and GAO’s Response

See comment 20. 

See comment 21. 

See comment 21 

See comment 22. 

See comment 8. 

See comment 23. 

See comment 24. 

Page 66 GAO-07-828 Reserve Compensation
Appendix IV: Comments from the Department 

of Defense and GAO’s Response

The Department of Defense (DOD) made comments on the presentation of 

the data in our report and raised a number of technical concerns. Our 

response to DOD’s technical comments follows.

1. DOD commented that we did not adequately describe the impact of the 

increase in funding related to the Global War on Terrorism. In its 

comments, DOD stated that in fiscal year 2006 more than $15.6 billion 

of the $173.2 billion in compensation costs were supplemental funding 

for the Global War on Terrorism. While it is true that our estimates 

include supplemental funding, we do not believe that the inclusion of 

this funding changes our findings or conclusions. Costs paid from 

supplemental funding represents real costs to the federal government 

that we believe are appropriate to include when calculating how much 

the federal government spends on compensating military 

servicemembers. However, we understand DOD’s concern, and 

footnotes in the report that explain our approach are sufficient. 

Furthermore, we believe that DOD’s comment illustrates the 

importance of providing greater transparency over mobilized 

reservists’ costs. As we have previously testified, with Global War on 

Terrorism costs likely to continue for the foreseeable future, it is 

becoming increasingly important that DOD move those costs into the 

baseline budget as the level of effort becomes better known and is 

more predictable.1

 Greater transparency over costs would provide 

administration and congressional decision makers more information to 

make fact-based decisions and weigh competing priorities for the 

nation’s resources. 

GAO Response to 

Department of 

Defense’s Technical 

Comments 

2. DOD did not disagree with our overall finding that active duty 

compensation costs to the government have increased since fiscal year 

2000. However, DOD stated that our reliance on end strength numbers 

for active duty personnel distorts active duty per capita costs 

calculations because that number does not include mobilized 

reservists. We did note in the report that mobilized reservists are paid 

out of active duty cash compensation costs and that our active duty 

per capita cost estimates do not take these mobilized reservists into 

account, and acknowledge in the report that the per capita costs to 

provide compensation would be lower if these mobilized reservists 

were taken into consideration. DOD’s concern further highlights the 

need for the department to establish greater transparency over the 

costs of reservists. As we state in this report, accounting for mobilized 

 1

GAO, Global War on Terrorism: Observations on Funding, Costs, and Future

Commitments, GAO-06-885T (Washington, D.C.: July 18, 2006). 

Page 67 GAO-07-828 Reserve Compensation
Appendix IV: Comments from the Department 

of Defense and GAO’s Response

reservists is problematic, given that they count against reserve end 

strength numbers but are paid out of active duty accounts. 

3. DOD raised concerns about the adjustments we made in our data to 

account for inflation, and felt that the deflators, or price indices, we 

chose understated the real growth in compensation costs between 

fiscal years 2000 and 2006. We are aware that the price indices we 

used make our growth estimates conservative and that other indices 

would show similar or greater growth. We recognize that in examining 

the growth of military compensation over time, the division of this 

growth between real growth and growth due to inflation depends on 

the price index or deflator used to adjust for inflation. For example, 

when dividing total growth in compensation between real growth and 

growth due to inflation, a higher rate of inflation will produce a lower 

real growth rate, and vice versa. We used the deflators for military pay 

that are contained in the National Defense Budget Estimates for fiscal 

year 2007 that are published by the Office of the Under Secretary of 

Defense of the Comptroller because they represent the official DOD 

indices for military pay budget matters. This office produces several 

different deflators or price indices that DOD uses officially to adjust 

dollars amounts for inflation for different budgetary purposes, such as 

procurement or operations and maintenance. We recognize, as DOD 

suggested in its comments, that we could have used the Employment 

Cost Index or the Consumer Price Index (for Urban Wage Earners and 

Clerical Workers) to adjust for inflation. Although DOD suggested the 

Employment Cost Index for wages and salaries would have been a 

more appropriate price index, we would have used the Employment 

Cost Index specific for total compensation for the private sector, 

because the military compensation number we calculated included 

more than wages and salaries. For example, in addition to wages and 

salaries we also included such things as allowances for housing and 

subsistence and retirement pay accrual. As we previously stated in our 

report, we used the military pay deflator and found that reserve 

compensation costs grew at a real rate of 47 percent from fiscal year 

2000 to fiscal year 2006. When we redid our calculations using the 

Employment Cost Index, we found that reserve compensation costs 

grew 48 percent from fiscal year 2000 to fiscal year 2006. When we 

redid our calculations using the Consumer Price Index, we found that 

reserve compensation costs grew 55 percent from fiscal year 2000 to 

fiscal year 2006. However, we note that DOD does not use this index to 

prepare its military personnel budgets. 

4. DOD commented that the calculation of the part-time reservists should 

have included pay groups for initial entry reservists in the average 

Page 68 GAO-07-828 Reserve Compensation
Appendix IV: Comments from the Department 

of Defense and GAO’s Response

strength. We agree and changed our data to include the pay groups for 

the initial entry reservists in the average strength. 

5. DOD commented that the department made a conscious decision to 

improve the transparency of compensation costs of mobilized 

reservists starting in the fiscal year 2007 supplemental submission. We 

agree that the services have taken the first step of displaying these 

costs as part of the supplemental request; however, we believe the 

department would benefit from greater transparency over these costs, 

including presenting them as part of a complete picture of 

compensation costs in the military personnel justification books. 

6. The sentence in question does not discuss whether or not reserve 

retirement pay has changed or whether DOD sought the TRICARE 

Reserve Select program; it simply provides examples of deferred 

compensation. However, we altered the sentence for clarity to reflect 

that we were talking about health care benefits for retirees. 

7. We adjusted the language for clarification to reflect the fact that not 

living in close proximity to military bases does not effect eligibility. 

8. We adjusted the language as suggested. 

9. We changed the sentence to reflect the fact we are referring to 

mobilized personnel only. 

10. We specify in the introduction of the report that we limited our scope 

to, part-time, drilling reservists, and full-time support personnel 

serving in the Active Guard and Reserve program of the Selected 

Reserve. We excluded reserve and guard members who were 

mobilized from our cost estimates. We defined our scope based on 

cost information presented by DOD in the budget justification books. 

These books present the cost of part-time and Administration and 

Support personnel. 

11. Our Results in Brief now show that DOD has testified that adding 

deferred compensation is not their preference. 

12. We excluded mobilized reservists from our cost estimates because 

their costs are not presented in the reserve justification books. 

However, we believe that the total costs of the Guard and reserve 

should include the cost for mobilized reservists and that the 

department should take steps to provide greater transparency over all 

compensation costs for decision makers to make fact-based decisions. 

Page 69 GAO-07-828 Reserve Compensation
Appendix IV: Comments from the Department 

of Defense and GAO’s Response

13. We added language to clarify that mobilized reservists are paid out of 

supplemental funding. 

14. We addressed the comment by adding a footnote to the section. 

15. We reordered the presentation of the reserve components as 

suggested. 

16. Agency officials told us that ongoing operations had been part of the 

reason for the increase in full-time reservists during the course of the 

review. However, we deleted the sentence as requested in the 

department’s formal comments. 

17. We defined our use of the term full-time reservists to mean Active 

Guard and Reserve in the introduction of the report. 

18. This statement is referring to reserve compensation costs as they are 

currently presented to decision makers in the justification books. 

However, we added “reserve” into the sentence for further 

clarification.

19. The report did not state that DOD has sought increases in deferred 

compensation, so no change was needed. 

20. The sentence refers to the cost of the program to the government and 

not to bonuses received by individuals. 

21. We added a statement to acknowledge that DOD has not sought some 

recent additions to deferred compensation, specifically TRICARE for 

life. However, DOD has not formally assessed the appropriate mix of 

compensation and has not developed a written policy or document 

that specifies the departments overarching strategy for compensation. 

22. While it is true that DOD has sponsored a study assessing the use of 

compensation under a reserve continuum of service concept, we 

continue to believe that DOD has not developed any performance 

measures to regularly and systematically assess all types of 

compensation. The study points out the effectiveness of targeted 

compensation. This is an example of the foundation for the 

compensation strategy we are recommending DOD formalize. 

23. The focus of our reports in 2005 and 2007 was on the difficulties with 

rolling out the Defense Integrated Military Human Resources System 

rather than on any particular service system. 

Page 70 GAO-07-828 Reserve Compensation
Appendix IV: Comments from the Department 

of Defense and GAO’s Response

24. DOD provided separate enclosures, in addition to its agency 

comments, that provided technical comments on tables in our report. 

We made those changes as suggested. 

Page 71 GAO-07-828 Reserve Compensation
Appendix V: 

A

GAO Contact and Staff 

cknowledgments 

Page 72 GAO-07-828

Appendix V: GAO Contact and Staff 

Acknowledgments 

John Pendleton, (404) 679-1900 or pendletonj@gao.gov 

In addition to the contact named above, David Moser, Assistant Director; 

Lori Atkinson, Ben Bolitzer, Renee Brown, Linda Keefer, Susan Langley, 

Julia Matta, Erin Noel, Charles Perdue, Rebecca Shea, Kathryn Smith, and 

Sonja Ware made key contributions to this report. 

GAO Contact 

Acknowledgments 

Reserve Compensation
Related GAO Products 

Military Personnel: DOD Needs Action Plan to Address Enlisted 

Personnel Recruitment and Retention Challenges. GAO-06-134. 

Washington, D.C.: November 17, 2005. 

Defense Health Care: Health Insurance Stipend Program Expected to 

Cost More Than TRICARE But Could Improve Continuity of Care for 

Dependents of Activated Reserve Component Members. GAO-06-128R. 

Washington, D.C.: October 19, 2005. 

Military Personnel: DOD Needs to Improve the Transparency and 

Reassess the Reasonableness, Appropriateness, Affordability, and 

Sustainability of Its Military Compensation System. GAO-05-798. 

Washington, D.C.: July 19, 2005. 

Military Personnel: Preliminary Observations on Recruiting and 

Retention Issues within the U.S. Armed Forces. GAO-05-419T. 

Washington, D.C.: March 16, 2005. 

DOD Systems Modernization: Management of Integrated Military 

Human Capital Program Needs Additional Improvements. GAO-05-189. 

Washington, D.C.: February 11, 2005.

Military Personnel: A Strategic Approach Is Needed to Address Longterm Guard and Reserve Force Availability. GAO-05-285T. Washington,

D.C.: February 2, 2005. 

21st Century Challenges: Reexamining the Base of the Federal 

Government. GAO-05-325SP. Washington, D.C.: February 2005. 

Military Personnel: DOD Needs More Data Before It Can Determine if 

Costly Changes to the Reserve Retirement System Are Warranted. GAO04-1005. Washington, D.C.: September 15, 2004. 

Military Personnel: Survivor Benefits for Servicemembers and Federal, 

State, and City Government Employees. GAO-04-814. Washington, D.C.: 

July 15, 2004.

Military Personnel: Active Duty Compensation and Its Tax Treatment. 

GAO-04-721R. Washington, D.C.: May 7, 2004. 

Military Personnel: Observations Related to Reserve Compensation, 

Selective Reenlistment Bonuses, and Mail Delivery to Deployed Troops. 

GAO-04-582T. Washington, D.C.: March 24, 2004.
Military Personnel: Information on Selected National Guard 

Management Issues. GAO-04-258. Washington, D.C.: December 2, 2003. 

Military Personnel: DOD Needs More Effective Controls to Better Assess 

the Progress of the Selective Reenlistment Bonus Program. GAO-04-86. 

Washington, D.C.: November 13, 2003. 

Military Personnel: DOD Needs to Assess Certain Factors in 

Determining Whether Hazardous Duty Pay Is Warranted for Duty in the 

Polar Regions. GAO-03-554. Washington, D.C.: April 29, 2003.

Military and Veterans’ Benefits: Observations on the Concurrent Receipt 

of Military Retirement and VA Disability Compensation. GAO-03-575T. 

Washington, D.C.: March 27, 2003. 

Military Personnel: Preliminary Observations Related to Income, 

Benefits, and Employer Support for Reservists During 

Mobilizations. GAO-03-573T. March 19, 2003. 

Military Personnel: Management and Oversight of Selective 

Reenlistment Bonus Program Needs Improvement. GAO-03-149. 

Washington, D.C.: November 25, 2002. 

Military Personnel: Active Duty Benefits Reflect Changing 

Demographics, but Opportunities Exist to Improve. GAO-02-935. 

Washington, D.C.: September 18, 2002. 

Military Personnel: Higher Allowances Should Increase Use of Civilian 

Housing, but Not Retention. GAO-01-684. Washington, D.C.: May 31, 2001. 

Defense Health Care: Observations on Proposed Benefit Expansion and 

Overcoming TRICARE Obstacles. GAO/T-HEHS/NSIAD-00-129. 

Washington, D.C.: March 15, 2000. 

Unemployment Insurance: Millions in Benefits Overpaid to Military 

Reservists. GAO/HEHS-96-101. August 5, 1996. 

The Congress Should Act to Establish Military Compensation Principles. 

GAO/FPCD-79-11. Washington, D.C.: May 9, 1979.

(350922) 
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