Service members are for the most part paid more than their civilian counterparts, but there are still ways the Pentagon can better compensate troops and their families, according to a new Department of Defense report—including changes to how it calculates allowances for housing and cost of living.
The 14th Quadrennial Review of Military Compensation (QRMC) is a sweeping look at the military compensation system, including basic pay, housing allowance, cost of living allowance, child care incentives, bonuses, and other benefits.
Those benefits have come under scrutiny in recent years, as troops reported unaffordable housing near their station assignments, food insecurity, and difficulty for spouses trying to find work. Federal lawmakers flagged several of those challenges in a Quality of Life report released last April. Those concerns “lent a sense of urgency” to work on this QRMC, which started back in 2023, according to the report.
“We know through long-standing research and lived experience that when the department prioritizes the basic needs of its service members and families to include fundamental quality of life factors, our members are better able to focus on their mission to defend the nation,” a senior defense official told reporters Jan. 15. “This requires a competitive compensation package to incentivize both the next generation to serve, as well as recognizing and retaining military skill sets that we have today.”
Overall, the report made eight recommendations to improve the system, grouped under three findings:
A. Military compensation is strongly competitive with the civilian labor market, but it needs to remain that way.
- Keep military compensation above that of most civilian counterparts
- Better inform troops about their compensation and benefits by improving communication
- Make military service more appealing to recruits with highly-sought after skills and experiences
B. Reduce pay volatility by improving data collection and processing
- Update Basic Allowance for Housing methodology
- Improve methodology for the cost of living allowance
- Regularly review deployment entitlements
C. Target non-cash compensation to better retain service members and their families
- Expand retirement savings options, child care support, and spouse employment initiatives
- Institute a regular quality of life review
Pay Raise
The first of the QRMC’s three core findings is that the overall military compensation package is “strongly competitive” with the civilian labor market. On average, enlisted troops make more money than 82 percent of their civilian counterparts with similar education and experience, while officers make more than 75 percent, the report found.
But competition with the civilian market remains fierce, and recent recruiting challenges showed officials that the military has to keep its troops in the 75th to 80th percentile for enlisted troops and around the 75th percentile for officers. Maintaining that edge will require keeping a close eye on civilian pay, the report said.
The edge should grow this year as the 2025 National Defense Authorization Act will raise basic pay 14.5 percent for junior enlisted troops through the E-4 paygrade, in addition to a 4.5 percent pay raise for the rest of the military. The raise means enlisted troops will make more money than 87 percent of their equivalent civilian counterparts, while junior enlisted troops in particular will make more than 95 percent, the defense official said.
But the department needs to sweeten the pot for “lateral entrants,” the term for recruits who join up with prior skills and qualifications such as in medicine and cybersecurity. Today, lateral entrants can come in at a higher rank, but not with more years of service, which limits their pay compared to troops at the same level who rose up through the ranks. The 14th QRMC called for expanding “constructive credits” to include both higher rank and years of service.
The military pay and compensation structure is complex, particularly when service members have to move or when there are changes in allowances. The report recommended that the military improve communication with troops so that they better understand their pay and benefits.
“While the QRMC found overall strength in the total compensation package, this does not seem to translate to service member satisfaction with military pay,” said the report, which called for clarifying key concepts and comparing pay to civilian options in the communications campaign.
Reduce Volatility
The other challenge with military pay and compensation, the report found, is how quickly it can respond to changing circumstances, and whether the data for informing those changes is adequate.
A key example is the basic allowance for housing (BAH). Overall, the review found that BAH for service members with dependents is between 17 and 60 percent higher than average civilian housing expenditures. But BAH varies based on military housing area (MHA), and accurately setting the BAH for each pay grade in each MHA has been hit or miss.
BAH rates are far more generous in some areas and for some pay grades than others, which can lead to confusion and frustration when troops change stations and find themselves with less spending power. Nationwide housing trends can also lead to discrepancies, such as when three-bedroom townhouses are more expensive on average than three-bedroom single-family homes.
To fix the issue, the report recommended replacing BAH calculations with a better model that will lead to more reliable, accurate, and stable BAH rates over time. It also called for ditching the current housing profile system—which breaks up housing into apartments, townhouses, and single-family homes with a set of number of bedrooms each—in favor of one that just focuses on the number of bedrooms, which will better keep pace with housing trends.
“BAH profiles based on ‘number of bedrooms’ adds flexibility to more accurately estimate housing costs in remote or challenging markets with unique housing distributions,” the report said.
Former Chief Master Sergeant of the Air Force JoAnne S. Bass advocated for revamping how BAH is calculated back in 2022.
Similar discrepancies crop up for the cost of living allowance (COLA), which helps offset non-housing expenses in pricey areas. COLA for overseas locations can fluctuate frequently, and even COLAs in the U.S. are sometimes thrown off by inaccurate triennial Living Pattern Surveys. The report called for conducting the Living Pattern Survey every year and including more data to make them more accurate.
Service members receive combat zone tax exclusion and imminent danger pay for serving in regions that are hostile or dangerous, but these benefits can stay in place for decades. That means troops in some zones that are no longer hostile receive deployment entitlements while troops in more hostile areas do not. Entitlements need to be regularly reviewed every five years to ensure consistency, the report said.
Retain the Family
The 14th QRMC was the first to focus on “the realities of dual-income military households,” the report said. Most military spouses want to work, the report found, but frequent moves and changes in child care access reduce their ability to do so, which can in turn affect retention decisions.
Non-cash compensation could help, the report said. For example, Congress could pass laws that would remove vesting requirements from pension plans so that military spouses are less affected by the loss of income induced by frequent moves. Other non-cash compensation options include continued support for child care and employment initiatives.
Some of those non-cash initiatives can be grouped under what the report called “quality of life,” factors such as housing, dining, base facilities, health care access, spouse employment, child care, and recreation. The report called for the Defense Department to conduct a periodic quality of life review to inform decisions in those areas, similar to the report Congress released last year.
The senior defense official told reporters that there has been some discussion about cycling between QRMCs and quality of life reviews so that the two inform each other.
“Is there value in investing that dollar in additional, you know, cash compensation changes, RMC changes?” the official said. “Or will we get a better return on investment for both recruiting and retention purposes if we put that next dollar into, say, quality of service programs as was mentioned before, barracks, dining, child care, military spouse employment efforts, things like that.”