Defining Ideas

The Pentagon’s Personnel Problem

Monday, June 5, 2017
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Editor’s note: The following essay is an excerpt of the new Hoover Press book Total Volunteer Force: Lessons from the US Military on Leadership Culture and Talent Management.

“How can the Army break up the institutional concrete, its bureaucratic rigidity in its assignments and promotion processes, in order to retain, challenge, and inspire its best, brightest, and most battle-tested young officers to lead the service in the future?”

—Secretary of Defense Robert M. Gates’s speech at West Point (2/25/2011)

What is wrong with the Pentagon’s personnel system? Perverse incentives in compensation and retirement have distorted the shape of the force—matching highly talented people with the wrong jobs, incessantly rotating employees up and sideways, and fostering a culture where employees feel obligated to express insincere preferences to stay on the career track to “get to twenty.” Neutered command authority over personnel decisions makes it difficult to match the right people with the right jobs, hurts readiness, and prevents toxic and predatory individuals from being weeded out of the ranks. Inflated performance evaluations are corrosive to fairness and integrity in the Army, Navy, and, especially, the Air Force.

During his farewell address to the cadets at West Point, Secretary of Defense Robert M. Gates identified the personnel system as his main worry for the future of the Army. Likewise, Secretary of Defense Ash Carter emphasized fixing personnel policies as vital to building “the force of the future” in his first speech in March 2015. Carter said, “We also have to look at ways to promote people, but not on just when they joined, but even more based on their performance and their talent. And we need to be on the cutting edge of evaluating performance. . . . We also need to use twenty-first-century technologies—like LinkedIn kinds of thing—to help develop twenty-first-century leaders and give our people even more flexibility and choice in deciding their next job—in the military.”

One statistic above all else serves as a red alert that the military personnel system is dysfunctional: the unemployment rate of young veterans. It averaged nearly a third higher than nonveterans (10.7 percent compared to 8.0 percent) before the 2009 recession. After 2009, more than one in five veterans age eighteen to twenty-four could not find a job between 2009 and 2012, twice the jobless rate of nonveterans. The persistence of this employment gap has reinforced some misperceptions about the quality of troops, even among top policymakers.

The unemployment rate of veterans may seem irrelevant to the readiness of the active-duty force, but it is a profoundly relevant symptom of the real problem: the institutional inefficiency of central planning. In blunt terms, some of the nation’s most talented young men and women are on active duty but never empowered to take—and in fact are discouraged from taking—an active role in applying their unique skills to the military’s needs. Job-matching is centrally planned in all of the armed forces. Young veterans enter the private sector almost totally unprepared to search for a job because that activity—the engine that drives America’s free market economy—is anathema to the modern Pentagon bureaucracy. It wasn’t always this way.

Ben Bernanke, the former chairman of the Federal Reserve, remarked at a public event in August 2015, “If you go into the military at age eighteen—versus an identical person who stays in the private sector and takes a private sector job—ten years later, if you leave the military, your skills and wages are probably not going to be quite as high on average as the private sector person.” Bernanke chided the Pentagon for advertising that service in uniform adds beneficial skills: “The evidence appears to be that there really is not an advantage,” and further that the military “is really not adding much to the private sector through training or experience.” He mentioned academic research by MIT economists Joshua Angrist and Stacey Chen, but unfortunately, Bernanke misinterpreted their work. Angrist and Chen compare veterans to nonveterans from the late 1960s when soldiers were drafted. In fact, the authors conclude that “lifetime earnings consequences of conscription . . . have almost surely been negative.” The authors were expressly not analyzing the impact of military service, let alone service in the modern era, but focused exclusively on the negative impact of conscription nearly six decades ago.

So, Bernanke was wrong, but his belief was rooted in the “civ-mil” employment gap that still persists today.

In August 2015, the US Bureau of Labor Statistics (BLS) issued a major report titled Employment Situation of Veterans. That month, the national civilian unemployment rate was 5.1 percent. For all 21.2 million veterans, the average rate of unemployment was lower, but for the 3.2 million recent veterans who served during the post-9/11 era, unemployment was higher than the civilian norm. Individuals in this cohort are described as “Gulf War II era” veterans (including all who served after 9/11 as their most recent period of service).

Those who served in Iraq or Afghanistan had lower unemployment rates than other veteran peers, 4.1 and 4.0 percent, respectively. Surprisingly, veterans who had served tours of duty in both Iraq and Afghanistan had the lowest unemployment rate of all, 2.9 percent. This suggests that combat experience involves skills that do transition well to civilian jobs. It seems that discipline, courage, teamwork, and other soft skills are highly valued and valuable in civilian occupations.

Another sign of the positive impact of military service comes from a recent study by the Department of Veterans Affairs, which found that “post-9/11 veterans attain 11 percent higher median earnings than non-veterans with similar demographic characteristics,” an advantage that was even higher for female veterans.

General comparisons of veterans to civilians can easily be skewed by the heavy gender and age differences among those two populations. A closer look at demographically similar cohorts offers an insight into where the problem lies. Younger male veterans have unemployment rates one and a half points higher than male nonveterans, but older veterans have unemployment rates equal or significantly lower.

Why does the employment gap persist for young veterans? The best answer came from a 2014 Rand study by David S. Loughran titled, simply, “Why Is Veteran Unemployment So High?” He considered five different explanations. After extensive demographic analysis, Loughran discovered that the skills mismatch hypothesis—the one Bernanke echoed—has “little support in the available data.” Another theory blames service-related injuries, but it is also not supported in the data. Service-related disabilities do keep one in seven veterans out of the labor force, but labor force participation rates are routinely higher, not lower, than for civilians. Nor is employer discrimination to blame. The fourth unsubstantiated hypothesis is that ex-soldiers are less innately competent than other Americans. The opposite is true. Soldiers have much higher literacy and IQ scores than civilians, on average.

Loughran concludes the culprit is weak job search capabilities. Young veterans, by definition, leave a stable job and enter what is to them a strange new world. The key evidence is that the unemployment difference between veterans and nonveterans evaporates over time. It decreases by almost half a percentage point each month after an individual leaves active duty.

In short, US military veterans have superior job skills but no job search skills.

Exacerbating the problem are legislative remedies made with the best of intentions. During out-processing, soldiers are strongly encouraged to sign up for unemployment compensation during their first day as a civilian. Yet academic studies show that unemployment insurance (paying people half their recent salary for many weeks if they remain unemployed) raises the national unemployment rate, while also causing skills to atrophy. A smarter program would make jobless benefits more generous, but not allow people to access those benefits until out of work for a month or two. During the 2009 recession, Congress extended the normal twenty-four weeks of jobless benefits to an unprecedented ninety-nine weeks. Young veteran unemployment skyrocketed.

None of this lets the Pentagon off the hook. It is unrealistic to teach a ten-year enlistee how civilian labor markets work with three days of transition classwork. Ultimately, the Pentagon’s centralized control over personnel assignments bears the most responsibility. A system of central job-matching leaves soldiers and sailors unprepared for a labor market that requires self-motivation, initiative, and personal responsibility.

Symptoms of problems are informative, but should not be mistaken for problems themselves, which is why conversations about retention problems or surveys of morale are of limited practical use. Even broad agreement that personnel policies are dysfunctional is followed by disagreement about what, exactly, is broken and even more disagreement about how to fix things. Respected scholars at the Army War College, West Point, and elsewhere describe the Pentagon system—a one-size-fits-all inflexible set of regulations that binds each branch—as industrial-era or feudal in nature.

The fact that two of the most recent secretaries of defense prioritized personnel issues is a reflection of long-time frustrations in the lower ranks. “The management system created in 1947 to serve a draft military is falling behind the demands of the 21st century all-volunteer force,” wrote Marine veteran Jesse Sloman in the National Interest. “Critics cite problems throughout the services, including: lockstep promotions based almost entirely on a person’s time in service; an outdated method of matching personnel with assignments that does not sufficiently take into account individual preferences, special skills, or unique experiences; and narrowly defined career trajectories.”

Citing reformers from high to low, however, could be done at nearly any time going back to the 1950s, when President Eisenhower was calling for personnel system reform. It is an evergreen challenge to modernize the human dimension, just as the military is incessantly challenging itself to remain dominant in weapons technology, tactics, and logistics. What I present is a more comprehensive assessment in order to move beyond symptomatic and anecdotal descriptions.

This peculiar management dilemma is poorly served by traditional management scholarship. Unlike the typical business school case study, top leaders in uniform do not lack the qualities that are championed by management experts, such as vision, passion, and values. Based on recent studies of the unique paradoxes of military talent management and statements by high-ranking military leaders, the dominant narrative is that the armed forces are headed by superior leaders who feel unable to manage talent effectively because of bureaucratic and legal constraints, despite the military’s strong and ancient leadership culture.

Because the military’s leadership culture is intertwined with personnel rules, both of which are based on obedience to authority unlike anything in the private sector, there is a real concern that fixing one might irreparably ruin the other. How can personnel (a.k.a. talent management or human resource) policies be distinguished from leadership culture? Which pieces are most important for retention, productivity, and morale? The management literature offers no simple answers for the armed forces, but utilizing firm-level survey data in the manner of Nicholas Bloom offers a way to think about the problem.

The name of the instrument developed for this broad-spectrum analysis is the Leader/Talent matrix, which I designed to evaluate two dimensions of an organization: leadership culture and talent management. The matrix includes forty elements spread across five leadership categories and five management categories. Categories in the cultural dimension are independence, development, purpose, values, and adaptability, which contrast with talent management categories such as training, job-matching, promotions, compensation, and evaluations. A survey of 360 current and veteran service members was conducted in early 2015 using the Leader/Talent matrix.

The 360 active and veteran respondents who evaluated the US armed forces gave high marks to leadership culture and low marks to talent management. The strongest categories were values and sense of purpose in the military; the weakest categories were job-matching, promotions, and compensation. For example, one of the lowest average marks by military members was on the statement, “Pay is closely aligned with performance.”

One word of caution: any organization can deflect criticism by describing itself as unique, with a unique mission, unique constraints, and so on. This is a reflexive instinct among military leaders—many of whom have not worked for an employer other than their service branch since age twenty-one. Many military leaders transcend this reflex, and here we will provide an analytical instrument for self-examination of an organization’s strengths and weaknesses relative to itself and its history.