Aviation Continuation Pay: Some Bonuses Are Inappropriate Because of
Prior Service Obligations (Letter Report, 10/14/94, GAO/NSIAD-95-30).

In 1989, the House Armed Service Committee expressed concern about the
large number of pilots who had testified at hearings that they had
accepted aviation retention bonuses--known as aviation continuation
pay--because the obligation they incurred ran concurrently with existing
service commitments. Despite congressional directives that such payments
should be avoided, the Department of Defense (DOD) continues to pay
bonuses for time that service members already have commitments. In
fiscal years 1992, and 1993, 58 percent and 69 percent, respectively, of
the new aviation continuation pay contractors went to aviators with
preexisting commitments. Overlapping commitments average 15 months and
cost DOD about $15 million in fiscal year 1992 and $11 million in fiscal
year 1993. Payment of such bonuses is not only inconsistent with
congressional direction but is not a prudent use of taxpayer dollars.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  NSIAD-95-30
     TITLE:  Aviation Continuation Pay: Some Bonuses Are Inappropriate 
             Because of Prior Service Obligations
      DATE:  10/14/94
   SUBJECT:  Flight training
             Military reenlistment bonuses
             Military personnel
             Aircraft pilots
             Military compensation
             Dual compensation
             Employee incentives
             Military aviation
             Oversight committees
IDENTIFIER:  DOD Aviation Officer Continuation Bonus Program
             
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Cover
================================================================ COVER


Report to the Chairman, Subcommittee on Military Forces and
Personnel, Committee on Armed Services, House of Representatives

October 1994

AVIATION CONTINUATION PAY - SOME
BONUSES ARE INAPPROPRIATE BECAUSE
OF PRIOR SERVICE OBLIGATIONS

GAO/NSIAD-95-30

Aviation Continuation Pay


Abbreviations
=============================================================== ABBREV

  ACP - Aviation Continuation Pay
  DOD - Department of Defense

Letter
=============================================================== LETTER


B-257335

October 14, 1994

The Honorable Ike Skelton
Chairman, Subcommittee on Military Forces and Personnel
Committee on Armed Services
House of Representatives

Dear Mr.  Chairman: 

In 1989, when extending the existing authority for the aviation
retention bonuses known as Aviation Continuation Pay (ACP), the House
Armed Services Committee expressed concern about the large number of
pilots who had testified at hearings that they had accepted the bonus
because the obligation they incurred ran concurrently with already
existing service commitments.\1 As part of a broader review of the
Department of Defense's (DOD) special and incentive pays, we assessed
how well the services were complying with the House Armed Services
Committee's direction that aviator retention bonuses were not to be
given to service members for time that they were already committed to
serve.  Specifically, our objectives were to determine the (1) extent
and amount of overlapping commitments and (2) reasons for preexisting
commitments. 


--------------------
\1 H.  Rept.  121, 101st Congress, 1st Session 278 (1989). 


   RESULTS IN BRIEF
------------------------------------------------------------ Letter :1

DOD is paying ACP bonuses for time that service members already have
commitments despite direction from the House Armed Services Committee
to avoid such payments.  In fiscal years 1992 and 1993, 58 percent
and 69 percent, respectively, of the new ACP contracts went to
aviators with preexisting commitments.  These overlapping commitments
stemmed from commitments incurred mainly in connection with receipt
of additional training or permanent change of station moves. 
Overlapping commitments averaged 15 months and cost DOD approximately
$15 million in fiscal year 1992 and $11 million in fiscal year 1993. 
Paying bonuses to entice aviators to commit to serve for periods of
time for which they are already committed is not only inconsistent
with the House Armed Services Committee direction, but is not a
prudent use of taxpayer funds. 


   BACKGROUND
------------------------------------------------------------ Letter :2

In the late 1970s, DOD and the Congress found significant problems
with aviator retention.  In 1980, the Congress initially authorized
aviator bonuses under 37 U.S.C.  301b.  The bonuses were intended to
be used to improve retention and reduce shortages of flight
personnel.  The bonus program, referred to as Aviation Officers
Continuation Pay, was reauthorized in some form from fiscal years
1981-82 and again in 1984-88.\2 For fiscal year 1989, the Congress
authorized a new aviation bonus program as a provisional retention
program to replace the Aviation Officers Continuation Pay program. 
The National Defense Authorization Act for fiscal years 1990 and 1991
(P.L.  101-189) authorized the present ACP program. 

Under the ACP program, the services are authorized to pay bonuses of
up to $12,000 for each year of additional commitment to aviators who
have completed at least 6 years but less than 13 years of active duty
service.\3 The commitment period cannot extend beyond their 14th
year.  Each of the services, with the exception of the Army,\4 is
using the ACP program to pay retention bonuses to aviators. 


--------------------
\2 The program ended on September 30, 1982, in accordance with the
sunset provision in the Uniformed Services Pay Act of 1981 (P.L. 
97-60, 113, 95 Stat.  989, 995 (1981)).  The Senate Armed Services
Committee found that the bonus was "an inappropriate solution to
long-term retention problems" with military aviators (S.  Rept. 
97-146 (Committee on Armed Services), p.  10, accompanying S.1181,
97th Congress, 1st Session, 1981).  The hiatus in the program ended
with the passage of the DOD Authorization Act of 1984 (P.L.  No. 
98-94, 904(a), 97 Stat.  614, 635-636 (1983)). 

\3 Pilot training commitments were changed to 7 years in 1987 and 8
years in 1988.  Aviators are not eligible for ACP until their
undergraduate training commitment has been completed. 

\4 Army officials stated that they have been able to retain
sufficient numbers of aviators without the ACP program and do not
want to single out one segment of officers for treatment that is
different from that provided its other officers. 


   ACP PAID TO AVIATORS WITH
   PREEXISTING COMMITMENTS
------------------------------------------------------------ Letter :3

Using data provided by the services, we determined that ACP was being
paid for periods of time for which aviators had preexisting
commitments for military service.  In fiscal years 1992 and 1993, DOD
committed to pay $94.6 million and $75.6 million, respectively, in
ACP.  Of those totals, approximately $15 million (16 percent) in
fiscal year 1992 and $11 million (15 percent) in fiscal year 1993
were for periods of time that the aviators were already committed to
serve.  Of the 2,278 new ACP contracts in fiscal year 1992 and the
1,104 contracts in fiscal year 1993, about 58 percent and 69 percent,
respectively, went to service members with preexisting commitments. 
Table 1 provides more detailed information on ACP payments for
periods of preexisting commitments during fiscal years 1992 and 1993. 



                           Table 1
           
           ACP Costs and Overlaps for Fiscal Years
                        1992 and 1993

                    (Dollars in millions)

                                Marine       Air
                      Navy\a   Corps\a   Force\b   DOD total
------------------  --------  --------  --------  ----------
New fiscal year
 1992 ACP
 contracts
============================================================
Total number             621       680       977       2,278
============================================================
Total cost             $11.8      $8.0     $74.8       $94.6
Contracts with           232       334       755       1,321
 overlap               (37%)     (49%)     (77%)       (58%)
Average overlap           13        16        14          14
 (months)
Longest overlap           67        24        59          67
 (months)
Cost of overlap         $1.9      $2.7     $10.5       $15.1
                       (16%)     (34%)     (14%)       (16%)
New fiscal year
 1993 ACP
 contracts
============================================================
Total number             137       168       799       1,104
============================================================
Total cost             $10.1      $2.0     $63.5       $75.6
Contracts with      75 (55%)  77 (46%)       612   764 (69%)
 overlap                                   (77%)
Average overlap           14        16        16          16
 (months)
Longest overlap           60        24        60          60
 (months)
Cost of overlap         $1.0      $0.6      $9.6       $11.2
                       (10%)     (30%)     (15%)       (15%)
------------------------------------------------------------
\a Figures on overlapping commitments do not include commitments that
are the result of tuition assistance (service payments for voluntary
education programs).  The Navy and the Marine Corps did not provide
this data because it would have required an extensive manual review
of records.  Consequently, the data shown in the table understates
the extent of overlapping commitments for those services.  In the Air
Force, tuition assistance accounted for 4 percent of overlapping
commitments in fiscal year 1992 and 7 percent in fiscal year 1993. 

\b Figures on overlapping commitments do not include commitments
occurring shortly before the ACP contract dates due to limitations in
Air Force data archives.  Consequently, the data shown in the table
understates the extent of overlapping commitments.  A study conducted
by a War College student using the same methodology as this one found
that 90 percent of the pilots who accepted ACP in fiscal year 1989
already had commitments to extend their service.  (See Mestemaker,
Michael J., "The Aviation Career Improvement Act and Its Impact on
Retention," Carlisle Barracks, Pennsylvania:  U.S.  Army War College,
1991.)


   REASONS FOR PREEXISTING AND
   OVERLAPPING COMMITMENTS
------------------------------------------------------------ Letter :4

Aviators contracting for ACP may have preexisting commitments
resulting from a variety of circumstances, including flight training
and permanent change of station moves.  Activities such as these
sometimes bring with them requirements for the continued service of
the individual for a specified period of time. 

The following composite illustrations show some of the main reasons
for preexisting commitments and the degree of overlap. 

  Case 1:  In January 1992, an Air Force strategic airlift pilot
     completed the advanced flight courses required to become a C-5
     crew commander.  In return for this training, the pilot incurred
     a 2-year service obligation.  In October 1992, the pilot signed
     a 6-year ACP contract for $72,000, which overlapped with the 15
     months remaining on the pilot's flight training commitment. 
     Thus, the pilot was paid $15,000 for a 15-month period of
     service (from October 1992 through December 1993) already owed
     to the Air Force. 

  Case 2:  In January 1992, following a tour of duty aboard an
     aircraft carrier, a Navy aviator accepted an assignment that
     involved a permanent change of duty station to a shore-based
     training squadron.  By making this move, the aviator became
     obligated for 2 additional years in the Navy.  In November 1992,
     10 months later, the aviator signed a 7-year ACP contract for a
     bonus of $84,000.  The aviator was therefore paid $14,000 for
     the 14-month period for which he was already obligated to serve
     because of the move. 

  Case 3:  A Marine Corps aviator had been flying A-6 aircraft for a
     number of years.  However, because that aircraft was being
     phased out, the aviator volunteered to be retrained as a Harrier
     (AV-8B) pilot.  The retraining obligated the aviator to 3 years
     of additional service.  A year later, the aviator signed a
     2-year ACP contract for $12,000.  As a result, he was paid
     $12,000 to commit for a 24-month period for which he was already
     committed. 

Data provided by the services shows that the primary reason for
preexisting commitments in fiscal years 1992 and 1993 was flight
training in the Air Force and permanent change of station moves in
the Navy and the Marine Corps.  Table 2 shows the reasons for
preexisting commitments for each of the services in those fiscal
years. 



                           Table 2
           
            Reasons for Preexisting Commitments in
                  Fiscal Years 1992 and 1993

                   (Figures in percentages)


Fiscal      Reason for preexisting            Marine     Air
year        obligation                  Navy   Corps   Force
----------  ------------------------  ------  ------  ------
1992        Flight training                1      18      57
            Permanent change of           93      62      33
             station
      Other                          6      20      10
1993        Flight training                0      31      51
            Permanent change of           97      64      29
             station
            Other                          3       5      20
------------------------------------------------------------

   RECOMMENDATION
------------------------------------------------------------ Letter :5

The payment of ACP bonuses without reductions for periods of service
for which aviators have preexisting commitments is inconsistent with
congressional committee expectations and is not a prudent use of
resources.  We recommend that the Secretary of Defense establish
internal controls to ensure that the services do not pay aviators for
periods of preexisting service obligations. 


   AGENCY COMMENTS AND OUR
   EVALUATION
------------------------------------------------------------ Letter :6

DOD partially agreed with our findings but did not agree with our
recommendation.  DOD recognized that offering retention bonuses to
aviators who have an existing service obligation may appear, when
taken in isolation, imprudent.  However, DOD stated that this
practice needs to be considered in relation to the underlying
objectives of the program.  DOD's comments are included in their
entirety in appendix I. 

DOD stated that permanent changes of station and advanced training
primarily benefit the service and the resulting commitments are
imposed for different purposes than the ACP commitments.  DOD noted
that personnel are moved to different duty stations to fulfill
validated service needs and the resulting service obligation is
imposed as a means of reducing the turbulence and cost that result
from moves that occur too frequently.  The service commitment
attached to advanced training is intended to ensure that the service
is able to recoup its additional investment.  The intent of the ACP
commitment requirement, on the other hand, is to ensure that
experienced aviators will remain in the service between the end of
their initial training commitments (6 to 8 years) and the point
(about 14 years) at which the lure of retirement benefits exerts
greater influence on retention. 

While we recognize that the various types of service commitments may
have been imposed for different reasons, the effects of such
commitments are the same--the aviator is obligated to remain in the
service for a certain period of time.  Paying a retention bonus to an
aviator when that aviator was already committed to remain in the
service is not a prudent use of scarce resources.  For example, we
found that some Marine Corps aviators who had a preexisting service
commitment requiring them to remain in the service for 24 months were
given ACP to remain in the service for those same 24 months.  In
effect, ACP did nothing to increase the retention of those aviators
who were already obligated to stay for the entire period. 

DOD also raised a concern that small differences in timing could have
large dollar consequences for individual aviators.  That is, receipt
of permanent change of duty orders immediately before ACP bonus
eligibility would cause the aviator to lose a substantial amount of
money.  This, however, is true of any program that has specific
eligibility periods.  If perceived inequity resulting from the timing
of ACP eligibility becomes a problem, it could be addressed by
suspending the unexpired portion of a preexisting service commitment
and reimposing it at the end of the ACP commitment period.  That is,
if an aviator had 16 months of service commitment remaining from
either a permanent change of station or some advanced training, the
aviator could receive ACP and the 16 months could be reinstated at
the expiration of the commitment imposed under the ACP program. 

DOD stated that if it required preexisting commitments to be
completed before an aviator could accept a retention bonus, resulting
attrition would cost more money than enforcing those commitments
would save.  DOD's rationale was that some aviators would refuse to
accept a relocation if it cost them some bonus money and then would
have to be separated from the service.  DOD said that since the
average training cost for an experienced aviator is about $5 million,
the loss of only a couple of aviators would more than offset the
projected savings. 

We believe this is a spurious argument.  If it were valid, it would
make sense to pay nearly $5 million in order to retain each aviator
and avoid incurring a $5-million replacement cost.  In reality, the
services do not replace such losses by recruiting and training a
replacement, but rather they cover retention shortfalls with rated
personnel drawn from other year groups or aviators assigned to
nonflying positions. 


   SCOPE AND METHODOLOGY
------------------------------------------------------------ Letter :7

We examined the legislative history of ACP, reviewed DOD's annual
reports to the Congress on the program, and reviewed pertinent DOD
and service regulations for the program.  We also interviewed DOD and
service representatives to determine their policies on paying ACP for
periods of previously existing commitments and to develop typical
examples of such preexisting commitments to illustrate overlaps. 

We worked with the services to develop methodologies for analyzing
the number, duration, and types of preexisting commitments.  Using
these analyses, we determined the cost of payment for overlapping
periods.  We did not perform a full reliability assessment of the
service databases.  However, we compared the information provided to
us to that contained in service reports and discussed the information
with service officials to determine whether it provided a reasonable
and accurate profile of individuals receiving ACP.  In determining
the length of overlap, we rounded the number of days to the closest
month.  Our review was conducted from January 1994 to August 1994 in
accordance with generally accepted government auditing standards. 


---------------------------------------------------------- Letter :7.1

As arranged with your office, unless you publicly announce its
contents earlier, we plan no further distribution of this report
until 10 days from its issue date.  At that time, we will send copies
to other interested congressional committees and Members of Congress;
the Secretaries of Defense, the Air Force, and the Navy; and the
Commandant of the Marine Corps.  We will also make copies available
to other interested parties on request. 

Please contact me on (202) 512-5140 if you or your staff have any
questions concerning this report.  Major contributors to this report
are listed in appendix II. 

Sincerely yours,

Mark E.  Gebicke
Director, Military Operations
 and Capabilities Issues




(See figure in printed edition.)Appendix I
COMMENTS FROM THE DEPARTMENT OF
DEFENSE
============================================================== Letter 



(See figure in printed edition.)



(See figure in printed edition.)



(See figure in printed edition.)



(See figure in printed edition.)



(See figure in printed edition.)



(See figure in printed edition.)



(See figure in printed edition.)


The following are GAO's comments on the Department of Defense's (DOD)
letter dated August 5, 1994. 


   GAO COMMENTS
------------------------------------------------------------ Letter :8

1.  We calculated the average overlap by averaging the number of
months of overlap for only those aviators who had overlapping
commitments.  DOD is suggesting that the approximately 30 percent of
the aviators who had no overlap also be included in the average. 
Calculating the average overlap in that way would yield a
misleadingly lower figure. 

2.  This argument is similar to the one previously mentioned. 
According to data provided by the Air Force on the new ACP contracts
for fiscal year 1993, there were 612 instances of preexisting
commitments, 43 (7 percent) of which were the result of tuition
assistance.  The 5.5-percent figure suggested by DOD would be based
on all Aviation Continuation Pay (ACP) contracts rather than only
those ACP contracts with overlaps. 

3.  The study conducted by the Army War College student shows that
the problem of overlapping commitments is not new and provides
reasonable assurance that the time periods we used for our review
(fiscal years 1992 and 1993) were not periods of abnormally high
overlaps.  We did not extrapolate any data from that study.  Rather,
we used data provided by the services. 

4.  The statement that "every aviator lost with seven years
experience will require seven years to replace" is not an accurate
portrayal.  Retention shortfalls are not filled by recruiting and
training a replacement.  Rather, aviator shortfalls are filled by
drawing from the already-trained aviator pool in other year groups
and from those in nonflying positions. 


MAJOR CONTRIBUTORS TO THIS REPORT
========================================================== Appendix II


   NATIONAL SECURITY AND
   INTERNATIONAL AFFAIRS DIVISION,
   WASHINGTON, D.C. 
-------------------------------------------------------- Appendix II:1

Norman J.  Rabkin, Associate Director
William E.  Beusse, Assistant Director


   OFFICE OF THE GENERAL COUNSEL
-------------------------------------------------------- Appendix II:2

Michael D.  Hipple, Attorney-Advisor


   NORFOLK REGIONAL OFFICE
-------------------------------------------------------- Appendix II:3

Dudley C.  Roache, Jr., Regional Management Representative
Janet Keller, Evaluator-in-Charge
Sharon Reid, Evaluator
Robert Floren, Evaluator
