Memorandum from the Armed Forces Pay Review
Body
INTRODUCTION
1. The following evidence summarises our
views on recruitment and retention in the Armed Forces to inform
the Defence Committee's inquiry. It is based on our published
reports (2007 and 2008 Reports enclosed).[1]
To help the Committee we first describe our remit, approach and
evidence base, and then the factors influencing, and steps taken
to improve, recruitment and retention.
HOW WE
OPERATE
2. As an independent Pay Review Body, we
provide advice to the Prime Minister and Secretary of State for
Defence on remuneration and charges for members of the Armed Forces
(up to and including Brigadier and equivalent ranks). Our terms
of reference (see Annex) require us to consider recruitment, retention
and motivation of personnel, pay comparisons with civilians plus
Government policies, its inflation target and departmental affordability.
3. Since 1971, AFPRB has been recommending
pay and charges which, in the main, have been accepted by Government.
We operate on an annual cycle starting in March with a full briefing
from MoD and the Services on current issues, followed between
March and July by our extensive visits programme. In 2007, we
visited 25 Service units in the UK, overseas and operational areas
meeting 3,800 personnel and families in around 300 discussion
groups. These visits allow us to hear views first hand and to
better understand the role of the military. They often highlight
issues which we can then test out with MoD or, if outside our
remit, which can be relayed back to MoD for action. In the autumn,
we receive written and oral evidence from the Government and various
parts of MoD. Annual evidence covers current strategies, manning,
recruitment, retention, working hours and leave plus various aspects
of the package under periodic review. We also commission our own
independent research covering pay comparability, pension valuations,
X-Factor and civilian housing costs. Our extensive evidence base
is completed by generic information on economic indicators, the
labour market, employment legislation and pay developments.
4. In making our recommendations, we are
also mindful of the total reward package available to the Armed
Forces including pay, pensions, allowances and support. MoD keeps
us up to date with developments outside our remit.
GENERAL
5. Armed Forces' manning, recruitment and
retention are important elements within our terms of reference.
Our 2008 Report noted that all three Services saw a decrease in
trained strength at 1 April 2007 compared with a year earlier,
partly due to restructuring which was being achieved through a
combination of natural wastage and redundancy. The drawdown was
at a time when operational commitments were significantly higher
than planned and continued to exceed Defence Planning Assumptions.
Armed Forces' manning levels have been persistently below requirement
for many years. The April 2007 deficit of 3.2% was the largest
since April 2003 and was outside the tolerance for the Public
Sector Agreement target. Looking forward, we pointed to the problems
each Service reported having to meet manning balance in 2008 and
2009.
6. We have repeatedly drawn attention to
the fact that the overall manning position masks severe shortages
in Operational Pinch Points. These cover some 67 trades and critical
manning groups amounting to around 35,000 personnel (20% of trained
strength). Management of pinch points was a MoD priority but even
if overall full manning is achieved pinch points would remain.
The manning shortages have exacerbated the pressures on the Armed
Forces over a period when commitments have outstripped resources.
7. Manning deficits, variable achievement
of recruitment targets and a gradual increase in Voluntary Outflow
have all informed our pay recommendations. Developments in the
package available to the Armed Forces have focused on targeted
measures primarily aimed at improving retention. However, we have
frequently commented that pay measures are only part of the solution
and must be accompanied by action on a range of non-remuneration
measures to support recruitment and retention. The desire for
home ownership and improved employer support are increasingly
raised with us by personnel and their families on our visits.
We have commented on the difficulties measuring the effectiveness
of support measures in helping retention but their importance
is frequently raised on our visits. We therefore welcome the intention
to publish a Command Paper in 2008 setting out the Government's
view on existing and further support to Service personnel.
FACTORS INFLUENCING
RECRUITMENT
8. The labour market. We observed
in our 2007 and 2008 Reports that the current labour market presents
challenges to the Armed Forces in maintaining or improving its
share of the recruitment market particularly as they must "grow
their own". Forecasts of labour supply and demand point to
increasing employment and economic activity among the population,
an ageing labour force, higher female employment, a reducing supply
of young people and increasing numbers of young people continuing
in education. The labour market is becoming more competitive with
vacancies rising, unemployment on a downward trend, redundancy
rates at low levels and competition for higher skilled personnel
increasing. We have suggested that the Armed Forces should develop
flexible entry points and training routes, develop careers for
those from non-traditional labour market sources, and attract
the higher skills required to support operational capability.
The Armed Forces cannot respond as other employers do to these
changes, for example they cannot readily fill gaps or skill shortages
by recruiting older workers or non-commonwealth foreign nationals.
Moreover, increases in labour supply are mainly from groups that
traditionally have not entered the Armed Forces.
9. Pay comparisons. Our recent assessments,
under our terms of reference, suggest Armed Forces' pay is broadly
comparable with other young people and graduates in civilian employment.
In 2007, Other Ranks' starting pay was comparable with civilian
median starting salaries up to age 21. Between ages 22-29 comparability
varied, being behind civilians for Privates/Lance Corporals (and
equivalents) but ahead for Corporals. Officers' starting pay was
behind that for graduates entering civilian employment but the
military offer significant progression in the early years and
starting pay was comparable with the public sector. Our recommendations
in recent years have targeted the most Junior Ranks and we have
made significant increases to new entrants' pay. However, Armed
Forces' pay rates must remain competitive to attract sufficient
numbers and quality of recruits with current labour market pressures.
10. Other influencing factors. In
evidence for our 2008 Report, MoD commented that some factors
both encouraged and discouraged recruitment, such as current operations.
This is borne out on our visits when personnel tell us that operations
are both the reason they joined the Armed Forces and an influencing
factor to leave. MoD also recognises the challenges of the buoyant
job market, recruitment of ethnic minorities and women, the impact
of the Deepcut Review and the potential for lateral recruitment.
We have commented on the importance of turning effective recruitment
into Gains to Trained Strength. Recruitment failing to meet target
is followed in later years by shortfalls in Gains to Trained Strength.
In the longer term, deficits follow through the rank structure,
as we have noted when assessing remedial pay measures for several
shortage groups.
FACTORS INFLUENCING
RETENTION
11. Outflow rates. Against the background
of manning shortages and improving but still fragile recruitment,
retention remains critical to operational capability. Voluntary
Outflow has continued on an upward trend, increasing during 2006-07
from 3.4 to 3.6% for Officers and from 5.4 to 5.6% for Other Ranks.
Exit rates for Officers and Other Ranks in 2006-07 were the highest
since 2001-02.
12. Commitment levels. Numbers in
Iraq have reduced and operations in Northern Ireland ceased in
2007, but numbers in Afghanistan are planned to increase. Evidence
to us and personnel on our visits to operational areas, emphasised
the qualitative transformation in the intensity of warfighting
engagements on operations so increasing the stresses on personnel.
The Armed Forces also continued to support the Government's wider
counter-terrorism operations and civil emergencies. MoD has stated
that the Armed Forces have operated significantly beyond resources
since 2002 and assessed, in evidence to us, that the Armed Forces
"can cope but only just and that they have a very limited
capacity to generate a reserve to meet the unexpected". The
direct impact of operational commitments is enduring breaches
of harmony guidelines which were difficult to meet for each of
the Services and particularly so in pinch points essential to
operational capability. Around 10% of Army personnel had exceeded
the guideline for involuntary separation with significant pressures
experienced by the Infantry, Royal Armoured Corps and Royal Artillery.
The RAF had over 6% of personnel exceeding the 12-month guideline.
The RN minimised harmony breaches which led to significant increases
in front line gapping (12.9% RN and Royal Marines 17.7%). We conclude
that, while the numbers committed to operations remained high
and manning deficits persist, personnel and their families will
continue to come under pressure posing real risks to recruitment,
retention and morale.
13. Pay comparisons. Base pay plays
an important role in retaining personnel in the Armed Forces.
Our remit specifically requires us to maintain broad pay comparability
with civilians. We concluded from our comparisons on job weight
at April 2007 that pay levels were broadly in line for Other Ranks
and Junior Officers but the gap with civilian pay levels at Lieutenant
Colonel through to Brigadier (and equivalents) had widened. Pay
movements for civilians of similar job weight were in a range
of 1.5 to 4.5% for Other Ranks and 2.6 to 8.4% for Officers. We
also assessed that the packages available to uniformed civilian
services were advantageous compared to the military, particularly
on starting pay although civilian entry ages are much higher.
Personnel see uniformed civilian services as natural comparators
and often in competition for recruitment or as second careers.
Armed Forces' pensions also have a role in retention in both their
value and the early payments. The structure of the schemes is
not within our remit but we undertake pension valuations so that
the relative military advantage can be taken into account in our
pay comparisons (the last valuation was for our 2007 Report).
14. X-Factor. Basic pay in the Armed
Forces is supplemented by the X-Factor of 14% to recognise the
relative disadvantage of conditions of service compared to civilians.
X-Factor is an important element of the remuneration package and
influences recruitment and retention in that it clearly sets apart
the military from civilians. Our 2008 Report (and accompanying
research) sets out our most recent review from which we concluded
a 1% increase was justified based on diminishing aspects of Service
life and slight improvements in civilian life. Military changes
were driven by significant increases in danger, turbulence, separation
and working hours—all seen as the highest priorities by
Service personnel and also influencing whether personnel stay
in the Armed Forces. Our recommended increase also recognised
targeted improvements such as the Operational Allowance, Longer
Separation Allowance and the Operational Welfare Package.
15. Continuous Attitude Surveys.
Operational pressure, separation and the impact on family life
continue to have a negative influence on retention according to
our interpretation of the 2007 Services' Continuous Attitude Surveys.
All these factors were strongly emphasised by personnel and families
on our visits. Compared to the previous year's survey results,
Army and RN Officers said they were more likely to leave while
RM Officers said they were less likely to leave, with the RAF
data showing little change. For Other Ranks, data for RN, Army
and RAF showed little change but those in the RM said they were
less likely to leave. For those personnel intending to leave the
Armed Forces, the most frequent reasons given relate to the impact
of Service life on personal and family life and the impact of
operational commitments and overstretch. While survey data indicated
that overall pay in the Armed Forces remained a positive source
of satisfaction, dissatisfaction with absolute and relative pay
was increasing.
STEPS TAKEN
TO IMPROVE
RETENTION
16. Our recent reports have noted the growing
emphasis on targeted pay measures where specialist shortages directly
impact on operational capability. These measures are increasingly
important to the remuneration package.
17. Financial Retention Incentives.
FRIs are becoming MoD's measure of choice to influence retention.
We have accepted, as has the National Audit Office, the necessity
of this short term approach and have welcomed MoD's time limits
and exit strategies for each FRI. However, we consider that MoD
should urgently assess the cost effectiveness of FRIs including
robust cost benefit analysis which estimates the additional numbers
retained rather than looking at absolute numbers who benefit.
We also observe that the widespread use of temporary measures
(now capturing larger groups within the Armed Forces) points to
potential pay structure problems which MoD should keep under review.
FRIs can be divisive and we have asked that MoD and the Services
actively manage other groups not receiving these incentives.
18. FRIs in recent years have targeted various
categories of Aircrew, the Infantry, Royal Marines, Submariners,
Specialist Nurses and the Royal Signals. For introduction in 2008,
we endorsed MoD's proposals for FRIs for Submarine Nuclear Watchkeepers,
RAF Regiment Gunners, RAF Firefighters, REME Vehicle Mechanics
and the Royal Artillery. We consider extensive evidence on each
before endorsement. Since 2005, the Principal Personnel Officers
of each Service have had delegated authority to implement quick
remuneration responses to emerging manning problems. These have
included FRIs for Submariner Medical Assistants, Royal Artillery
Unmanned Aerial Vehicle Operators and Courier Despatch Riders
plus a Golden Hello for Leading Aircraft Controllers.
19. Specialist Pay. Specialist Pay
is specifically designed to address longstanding recruitment and
retention difficulties. We review rates of Specialist Pay annually
and periodically review each item. Targeted changes to aid recruitment
and retention have included a new category for Explosive Ordnance
Disposal Operators (in 2008), specific increases to rates and
restructuring as proposed by MoD. Each of the Services regularly
reviews posts attracting Specialist Pay.
20. Other measures. Personnel on
our visits have frequently highlighted the need for remuneration
to be focused on those deploying to operations. In response, the
package has been developed by enhancements to Compensatory Allowances,
the introduction of the Operational Allowance (in 2006), improvements
to the Operational Welfare Package and Council Tax relief on operations.
We have successfully targeted compensation through the Longer
Separation Allowance (and its predecessors) to those experiencing
the most separation. These have included targeted rate increases
and reductions and removal of the initial qualifying periods.
All these enhancements have been widely welcomed by Service personnel
and Senior Officers on our visits.
IMPACT OF
RECRUITMENT AND
RETENTION DIFFICULTIES
ON MEETING
COMMITMENTS
21. The size of the Armed Forces' manning
deficit is crucial to running the business of the Armed Forces.
The deficit leads to gapping of posts, additional workload pressures
on individuals and challenges delivering manpower requirements
for operations. These effects are most keenly felt in the Operational
Pinch Points. In our view, the manning deficit can only be rectified
by improved recruitment, reducing training wastage and encouraging
longer service. It might be normal business practice for employers
in many sectors of the economy to carry a manpower shortage but,
since the Services only recruit at base ranks and grow their experience,
they cannot respond in the same way as employers in the wider
economy who have a greater range of employment or resource options.
SPECIFIC GROUPS
22. Reserves. Our reports have commented
on the crucial role Reserves play in supporting operations. The
Reserves have seen a significant shift in focus in the last ten
years towards being available to mobilise in support of operations.
Reserves' manning shortages tend to mirror those in Regular Forces
and recruitment has declined since 1999. From the evidence presented
to us and meeting Reserves on our visits, recruitment and retention
factors apply equally as they do to Regulars. We welcome the introduction
of a combined Regular and Reserve recruitment process and await
its impact on numbers recruited. While pay does not appear to
be a major concern for Reserves, the Training Bounties influence
retention particularly in the early years although we have advocated
the tailoring of bounties to match individual Services' needs.
We are also told on our visits that regular opportunities for
and quality of training also help to retain Reserves. A major
consideration is the attitude of and support to Reserves' civilian
employers. While MOD and individual Reserve units make efforts
to engage with employers, this is an area which is frequently
cited by personnel as requiring more resource and priority.
23. Defence Medical Services. We
report separately on Service Medical and Dental Officers which
have suffered from significant specialty shortfalls for a long
period. Our terms of reference require us to maintain broad pay
comparability with NHS equivalents and, in recent years, there
have been numerous pay measures introduced to support retention,
including new DMS pay structures in 2003 and significant targeted
pay awards. Key retention influences are similar to the rest of
the Armed Forces including operational pressure, separation and
quality of life.
CONCLUSIONS
24. Recruitment and retention have both
been influential on our deliberations regarding appropriate Armed
Forces' pay awards. The Armed Forces' remuneration package has
seen considerable development in recent years involving base pay
awards, increases to X-Factor and targeted measures. MOD's strategic
approach to remuneration has focused on targeting specialist areas
or providing better compensation arrangements for those experiencing
the impact of operations. However, we have learned from more detailed
reviews of specific areas of the Armed Forces that pay solutions
need to be accompanied by effective non-remuneration measures.
The Armed Forces face an increasingly competitive recruitment
market, including competition for higher skilled people, and will
need to look at alternative sources. Retention of expensively
trained personnel will also be the focus of MOD strategies if
operational and other commitments remain at high levels. We consider
the factors influencing retention can often be traced back to
the underlying problem that Armed Forces' commitments continue
to exceed resources.
17 March 2008
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