(b) For those with over 2 years of service, the bill would authorize average basic pay increases as follows: for officers, an overall budget average of 15.3 percent, ranging from about 5 percent to 18 percent for the various grades concerned; for enlisted personnel, there would be an overall budget increase of 14.7 percent, also ranging from about 5 percent to 18 percent, depending on the grade concerned. The annual increase for officers would range from an average of $522 to an average of $1,140, and for enlisted men from $60 to $759.

(c) The bill provides for an increase in the subsistence allowance in varying amounts. For officers, a 6.6-percent increase is recommended, from $47.88 to $51 per month. For eligible enlisted personnel, the commuted ration allowance would be increased 21.4 percent, from $1.03 to $1.25 per day ($37.50 per month); the allowance for those for whom rations in kind are not available would be increased by 26 percent, from $2.57 to $3.25 per day.

(d) The House bill adds a new family separation allowance, ranging from $30 to $53.40 per month, for those members, E-4 with over 4 years' service and above, who are separated from their families because of a permanent change of station or temporary duty in excess of 30 days.

(e) The bill also contains a new combat pay provision authorizing $55 per month for persons who are subject to hostile fire or explosion of hostile mines. This provision, which would be retroactive to January 1, 1961, would not be operative in time of war declared by the Congress.

(f) Retired pay features. The provisons of the bill affecting retired pay are as follows:

(1) For those retired prior to 1949 and receiving pay under the old laws, a 5-percent increase is authorized;

(2) For those retired prior to June 1, 1958, and receiving pay under the Career Compensation Act rates, recomputation under the 1958 Pay Act would be authorized, together with a 5-percent increase of the recomputed sum;

(3) For those retiring after June 1, 1958, and before January 1, 1963, a 5-percent increased would be authorized;

(4) For those retiring between January 1, 1963, and the effective date of the bill, a provision recommended by the House would authorize recomputation of retired pay under the 1963 rates in the bill.

The Chair will make no attempt to discuss the various other features in the bill on which information will be developed during the course of the testimony.

There is before each member of the subcommittee a committee print prepared by the staff containing an analysis and discussion of all features of the pending legislation.

We will now begin the testimony with Mr. Norman S. Paul, Assistant Secretary of Defense for Manpower.

We will proceed until 12:30, if we are permitted to meet this afternoon, and I am sure that there is a very good possibility in that regard, and then we will resume at 2:30 this afternoon, if possible.

Mr. Secretary, you may now proceed in your own way.

STATEMENT OF NORMAN S. PAUL, ASSISTANT SECRETARY OF DEFENSE (MANPOWER); ACCOMPANIED BY COL. LEO E. BENADE, DIRECTOR, TASK FORCE ON MILITARY COMPENSATION, OFFICE, SECRETARY OF DEFENSE

Mr. PAUL. Thank you, Mr. Chairman.

Mr. Chairman and members of the committee, I welcome the opportunity to testify on H.R. 5555, the proposed Uniformed Services Pay Act of 1963. We are prepared to discuss the bill in whatever detail the committee may desire.

In this statement, however, I will limit my remarks to a discussion of the background and major provisions of H.R. 5555 and the modifications which we believe should be made in the bill in order to achieve a more effective balance in the proposed compensation increases, and to correct certain deficiencies.

With the modifications recommended in this statement, the Department of Defense strongly recommends enactment of H.R. 5555, and I hope the bill will receive your favorable consideration.

BACKGROUND OF H.R. 5555

H.R. 5555 derives basically from a legislative proposal submitted to the Congress by the Department of Defense in January of this year. Our proposed legislation was designed to implement the President's recommendations concerning needed adjustments in compensation for service members. In his budget message to the Congress for fiscal year 1964, the President stated:

In this era of increasingly complex weapons and military systems, a large part of the effectiveness of our Defense Establishment depends on the retention of well-trained and devoted personnel in the armed services. General military pay was last increased 42 years ago. Since then, higher wages and salaries in private industry have provided strong inducement for highly trained military personnel to leave the service for better paying jobs in civilian life. To help meet this serious problem, and in fairness to the dedicated personnel in our Armed Forces, I will shortly submit to the Congress specific recommendations for increases in military compensation rates effective October 1, 1963.

Mr. Chairman, I will discuss in a moment the need for enactment of H.R. 5555 to retain more of our highly trained personnel in active service. Before doing so, however, I want to stress my strong belief that there is another important reason for enactment of this bill, as pointed out by the President in his budget message.

Simple justice requires recognition of the fact that we have a continuing obligation to our men and women who have contributed so much to the security and welfare of this Nation by remaining on active duty beyond any period of obligated service.

They have done so in countless cases at the cost of hardship to themselves and their families, too often very little real recognition from the public as a whole.

They do not work an 8-hour day or 40-hour week. There is no overtime pay for the longer workdays and workweeks which so many of them must put in.

I do not believe we can actually compensate in dollars for the hazards and hardships that members of the armed services must be prepared to accept, and do accept, in wearing the uniform of their

country. But, I do believe that the administration and the Congress have a mutual duty to see to it that the rates of pay for service members are regularly adjusted in line with the pattern of steadily increasing civilian earnings in the United States.

The pattern of the selective pay increases proposed by the Department of Defense was principally designed to alleviate the retention problems being experienced by the armed services. Accordingly, it may be helpful to the committee for me to summarize very briefly what those problems are.

THE RETENTION PROBLEM

ENLISTED PERSONNEL

In order to maintain the required force structure, the military services must recruit or draft annually about 450,000 men to replace an equivalent number leaving the service. All the armed services except the Army meet their enlisted manpower needs through voluntary enlistments. The Army continues to obtain a part of its requirement for new recruits from inductions.

Without doubt, our program depends heavily on the existence of the draft. While the desire to serve in the Armed Forces is the prime motivation of many enlistees, the existence of the Draft Act provides the mainspring of our enlistment programs.

Since 1957 the overall reenlistment rate of men completing their first term of service has fluctuated around 25 percent. However, the rates vary considerably by military specialty-the lowest are in electronics and other technical fields, some of which are in great demand by industry. Consequently, all the services are short of the desired number of experienced, career personnel in the electronics and other technical fields.

There is a need for a relatively high proportion of careerists in the most technical enlisted skills, with desired ratios averaging about 60 percent. Actual career manning in these skills, however, at present. averages only about 40 percent for the Department of Defense as a whole.

The critical importance of our training and retention problem can be illustrated by the following figures: First, the total cost of technical training in the Department of Defense is nearly $1 billion per year. Nearly one-half of this cost is associated with the training of electronic technicians, because of the longer training periods and the high cost of the training equipment. Our studies indicate that the average cost of initial training for the electronics specialist is approximately $4,500, as compared to only $2,000 per man in administrative and clerical skills.

The reenlistment rate of individuals completing their second or subsequent enlistments is satisfactory, averaging almost 90 percent. Undoubtedly the military retirement system is a major consideration in the reenlistment decision of most individuals who have completed their second enlistment. This generally occurs at about the 8- to 10year point. Relatively few men feel they can give up 8 or more years of service toward future retirement even if offered substantially more salary in a civilian occupation. Under the military retirement system,

a member receives nothing in retirement benefits if he leaves the service before completing at least 20 years of active service, except in the case of a member retired for physical disability.

In summary, there is abundant evidence that the major enlisted retention problem in all the services is a selective one and is associated with retaining individuals in most of the technical occupations upon completion of their initial term of service.

OFFICER PERSONNEL

In the case of officer personnel, the services have each year substantially met their procurement objectives. The draft law plays at least as large a role in the success of our officer procurement program as it does for enlisted recruitment.

Officer retention rates vary among the services and among the different procurement sources. As a group, service academy graduates are the most likely to remain in service; approximately 85 percent remain beyond their obligated service commitment. Army and Air Force officers commissioned from officer candidate school have a retention factor of about 75 percent. Retention of Air Force aviation cadet graduates since 1957 has ranged between 65 and 90 percent. However, these three sources together provide less than 10 percent of the new officers acquired. The remainder enter through sources with much poorer retention experience.

The retention rate of ROTC graduates is only 33 percent. The average retention rate of graduates of the Navy Officer Candidate School, which provides about one-third of the officers annually commissioned by the Navy, has been about 12 percent. Officers commissioned from the latter program serve an obligated tour of 3 yearsthen most of them return to civilian life. The major procurement sources for naval flying officers are the aviation cadet and aviation programs; these sources have had, with the exception of Naval Academy graduates, the highest Navy retention rates, 45 and 30 percent, respectively.

Our inability to induce more officers to apply for retention beyond their obligated period of service ultimately affects the quality of our officer corps. In order for the services to put into the career force annually the officers they require, they have had to accept from 95 to 98 percent of those who apply for indefinite career status. Obviously, from a quality standpoint alone, we would welcome an opportunity to be more selective.

Because of the need for officers to be trained in a broad spectrum of responsibilities, including command and staff positions as well as various military specialty fields, the retention rates of officers by skills is not as meaningful as it is for enlisted personnel. However, the lost of officers with certain professional training has been a particular problem. For example, the Air Force, with many officers assigned in the scientific and engineering areas, is retaining only about 15 percent of the officers with scientific and engineering degrees upon completion of their obligated service. The Army is retaining less than 1 out of 5 of its engineers. The Navy retention experience is equally poor.

Mr. Chairman, there are, of course, many factors which play a part in the personnel retention problems of the Armed Services.

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We know that there is no easy solution to the manpower problem. The military services are doing all they can to ease the strain on their personnel and to improve the conditions of service. However, a major factor in the present situation is that the pay and other tangible incentives which the Armed Forces can offer have not kept pace with those of private industry and civilian government employment and are insufficient to induce adequate numbers of trained men to continue in the military service as a career. An adjustment in military compensation is essential if the needed improvement in retention of skilled and experienced personnel is to be achieved.

LEGISLATIVE PROPOSALS

The legislation proposed by the Department of Defense last January would provide a substantial increase in the pay and allowances of members of our Armed Forces. Last year, the Congress approved proposals for a basic quarters allowance incease, the first of such increases since 1952. The increases proposed this year in basic pay are the first of such increases since 1958. Although the total annual cost of the compensation increases now requested exceeds $1.2 billion, we believe that these increases are fully justified, and in the national in

terest.

H.R. 5555, as passed by the House of Representatives, provides for compensation increases which, in total, approximate the annual cost of our original proposals. This annual cost is estimated at $1,226,230,000. We believe that H.R. 5555 represents a highly constructive step toward the objectives which we and the Congress seek to achieve. It is our hope, however, that this committee and the Senate will reconsider certain of the provisions of the House bill, with particular emphasis on raising officer compensation in the middle grades, in order to cope more effectively with the selectivity and retention problem which I described earlier.

Addressing myself to the specifics of H.R. 5555, with one exception, the proposed rates of basic pay in this bill correspond to the rates originally recommended by the Department of Defense. We had proposed increases in basic pay for all members irrespective of length of service. Under H.R. 5555, no increase is provided for members with less than 2 years of service for pay purposes. For members with more than 2 years of service for pay purposes the average increase is 14.7 percent.

For officers, the highest percentage increase in basic pay is provided for the grades of first lieutenant and captain. The amount of the increase is progressively less for each higher grade.

For enlisted members the largest percentage increases, in general, go to members in pay grades E-3 through E-5. The critical point in the career decision for most enlisted members is at the 3-4 year service point. By that time the average enlisted man has advanced to the grade of E-4. The bill provides a basic pay increase of $30 a month to the E-4 with over 4 years service, and a $30 increase to the E-5 with over 6 years service. This amounts to a 17.6 percent increase in basic pay for the E-4 and a 14.3 percent increase for the E-5.