Select Committee on Defence Written Evidence

Memorandum from the Armed Forces Pay Review Body


  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.


  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.


  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.


  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.


  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.


  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.


  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.


  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.


  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

1   All our reports and accompanying research are published on Back

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