practically I would not think would have left the service regardless of whether or not they received the bonus.

Admiral ZECH. If I may, Senator, our requirement for those aviators I am talking about-O-3's to O-5's-for example, is 12,619. We were short 2,430 in 1981. Our analysis showed us that if we had not had the bonus, the shortage would have increased. As a result of the bonus the shortage decreased, and we are starting to improve the readiness of our Navy because of the bonus.

Senator RUDMAN. That is an assumption, Admiral.

Admiral ZECH. Sir, it is based on the best analysis we have. The results show that the bonus was very effective. Our figures and our analysis show that the curves were all going down until we put the bonus on. Our analysis then showed we did improve with the bonus.

One can argue with our analysis, and one can argue with our model. It is not perfect, but it has been very successful in a reasonable sort of way and we put reasonable confidence in it. You can see it was conservative in its estimate because we actually retained more aviators than the model showed we would. The model is not perfect, Senator, but I believe it shows that the trend was right and we did achieve the results that we expected.

Senator RUDMAN. I think for that model to be truly effective it would have to have more than the three factors contained in it. That model contains three factors-one, the number of the shortage, and, two, the amount of the bonus, and three, a subheading, the number of people retained. The model is made of those three components.

It seems to me for that model to really tell the whole story it would also have to include a fourth factor, and that fourth factor would be the amount of hiring by the private industry, particularly the airline industry, over that same period. I would hazard a guess that in times of high airline hiring-let us assume the airlines next year are going to hire 3,000 new pilots-that the requirement is only 2,000 hours for a copilot's position, with all the ratings, with starting pay at $40,000 to $45,000 a year, I would say that even with the bonuses being offered that you would have a very serious decline in your people with, let us say, 3 to 6 years of service, regardless of the numbers.

On the other hand, if the airlines were hiring zero, then I would expect it would show a different figure.

I understand how these models were constructed. If I were here testifying, constructing models, I expect I would construct them the same way, but I am not sure the model as constructed gives us the complete cause and effect that we are looking for.

Admiral ZECH. The model is not the only tool we use. We do have other methods of analysis. We look at airline pilot figures, and we get surveys using their own numbers. We use all of that in our analysis. We don't rely totally on the model. I do not mean to infer that at all.

Our total analysis shows that as best we can predict it-and we all know it is difficult-airline hiring was entered in as part of our analysis of our requirements to see whether we would be able to bring airline pilots back into the Navy.

We have made rather aggressive efforts to bring back people from the airlines into the Navy. All that was figured into the total analysis, and it did, I believe, show that with an aviation bonus we could improve our situation. That is indeed what happened.

There are some things that we should do to improve the bonus, and we are certainly willing to do that.

My point is that I believe that the aviation bonus has been very cost-effective. It has been very important to us. It has contributed to the improved readiness of our Navy.

RESERVE PILOT STATUS

Senator STEVENS. Admiral, according to the figures we have, there are somewhere between 4,000 and 5,000 pilots on involuntary leave or furlough from the civilian airlines. We have a considerable number of Navy pilots in the Reserve, don't we?

Admiral ZECH. Yes, sir, we do.

Senator RUDMAN. Did you pay them the bonus to stay in the Reserve? I understand Reserve enlistments are up. Did you pay bonuses to them to come into the Reserve? Do they get any part of the bonus money for reenlistment? They don't, do they?

Admiral ZECH. We are really talking active duty.

Senator STEVENS. I am talking Reserve reenlistment. Did you pay a bonus?

Admiral ZECH. No.

Senator STEVENS. Do you have a model to find out why some people are coming into the Naval Reserve?

Admiral ZECH. We use our model for those predictions.

Senator STEVENS. I imagine the Air Force has a model that tells us why their enlistments are up without a bonus. Maybe we ought to listen to that. I am not sure we want to listen to computers. I would rather listen to your minds telling me why you think continuation of this bonus is necessary when there are so many people out there who are unemployed in the civilian sector, when enlistments are up, commitments are up in the Reserve and in the National Guard and in the Air Force.

Why do the Marines and the Navy need a reenlistment bonus? Admiral ZECH. Reenlistment bonus is a different issue.

Senator STEVENS. I mean aviation bonus. There is a bonus for reenlistment.

Admiral ZECH. It is an aviation officer continuation bonus. "Reenlistment Bonus" refers to enlisted personnel. This is the special term we use for that.

Senator STEVENS. To me, it is the same thing; it is bonus for reenlisting.

Admiral ZECH. You asked me for my judgment and I am giving you that.

Senator STEVENS. Tell me why the Air Force is doing so well, and you need it?

Admiral ZECH. The aviation officer continuation bonus is being used by the Navy and the Marine Corps. The Air Force is using increased aviation flight pay. We are not using both in the Navy. Our regulations state that if you pay an officer a bonus, you do not pay him increased flight pay.

FLIGHT PAY

Senator STEVENS. They do get flight pay?

Admiral ZECH. Yes, but not the increased flight pay. There was not an awful lot of difference in the cost of the programs, but our analysis showed that the bonus would retain more people faster than if we applied the increased flight pay.

I might add, too, that flight pay is across the board for everyone. We tried to comply with the congressional direction and target our needs.

Senator STEVENS. If I get $38,000 to put in the bank now as compared to getting flight pay over a 4-year period, I don't think you would have to be a Navy pilot to figure that one out. With all due deference, money in the bank is money in the bank. They didn't have it available, yet their program worked, too. It did not cost the Treasury what yours is costing. We borrowed that money and the taxpayers are paying 15.5 percent interest on borrowing to pay that bonus.

Your people are putting it into the money markets or somewhere, I assume, and getting some interest, probably buying government securities if they are smart. You are giving us one terrible problem and we don't understand it, with the GAO report, why you can't come up here and say you are going to modify that program in some way to make it cost effective.

Admiral ZECH. Senator, we have a terrible problem in the Navy. We are short of aviators. The Air Force does not have the same problem that we have. The critical target area was lieutenant, lieutenant commander and commander. We have tried to comply with what Congress told us to do. We have targeted that area. We figured with the bonus payment we would have more response immediately than over the long haul. That is exactly what happened.

We simply needed to stop the hemorrhage of talent that was leaving our aviation community. We needed to do something to arrest the numbers of people leaving our aviation community. The bonus has done that. I believe it has been cost-effective. My judgment is that it should be continued.

Senator STEVENS. I thank you. I am sure you are sincere in your opinion.

General Thurman, do you have any comments?

DEPARTMENT OF THE ARMY

STATEMENT OF LT. GEN. MAXWELL R. THURMAN

General THURMAN. Thank you. I would like to speak to the point on pay comparability, or the 4 percent, or 8 percent for civilians. I would just like to tell you that the Department of the Army speaks for the soldier, and I would simply remind the committee that in 1976, when we stopped pay comparability, after we got started in that direction for the military we were running 60-percent retention in the NCO corps, and it dropped to 50 percent by 1979 and gave us a shortage of 16,000 E-5's and E-9's at critical NCO levels.

So I would encourage you, sir, to take a hard look at the impact of that. We are going well now. We are within 3,000 of closing our NCO gap this year.

With the programs you have mentioned the enlistment are getting the Army in the shape you want it.

[The prepared statement of General Thurman follows:]

PREPARED STATEment of Lt. Gen. Maxwell R. THURMAN, DEPUTY CHIEF OF STAFF FOR PERSONNEL, U.S. ARMY

I wish to thank the committee for this opportunity to present the Army's concerns about compensation. I also wish to thank the Congress once again for recognizing through our 1980 and 1981 pay increases that the men and women who serve in our Armed Forces deserve to be appropriately paid for their labors. You have also acknowledged through legislation that proper compensation takes many forms. Apart from the basic pay and allowances which recognize the individual's overall needs, we have developed through your support bonuses, special pays, and other remunerations which recognize specific skills, hazardous duties, and unique costs incurred pursuant to compliance with movement orders. In addition, we use the bonus system as a force management tool to attract qualified personnel into hard-to-fill military specialties and later to encourage especially qualified professionals to reenlist, providing the corps of careerists needed to man the Army and train junior soldiers.

We live in an era of acute economic awareness. We must compete for quality soldiers in a highly competitive marketplace. We must compete successfully enough to build a competent Army of intelligent men and women who come to the Army not out of economic necessity, but because they appreciate that the government is willing to recognize their worth. To this end, the Army leadership is concerned that we not misjudge what motivates young men and women to join and to stay in the Service.

It is more difficult to compensate military personnel properly because of the system of mandatory assignments which our soldiers must accept. In the private sector, individuals are paid according to their ability to generate profit. There is an underlying freedom of job choice with a certain degree of lateral mobility. In the military service, choice is constrained because our needs dictate length of service, duty assignment and location. This may not correspond with a soldier's personal choice. Similarly, mobility into the force is normally limited to the basic entry level. Given these differences as a foundation, military compensation can be reviewed.

All soldiers greatly appreciate the compensation improvements of the last two years. Those improvements provide reimbursement for expenses associated with relocation-often to high cost areas-and returned military pay to rough comparability with the private sector. The series of pay caps and reallocations during the 1970's caused a significant lag in military pay. Decisions to constrain pay provided short-term budgetary savings; however, the loss of personnel with their skill and experience was an ominous trend.

Current economic conditions notwithstanding, we still compete with the private sector for high school graduates and skilled personnel. We need to retain rough pay comparability to ensure successful recruiting. Many of the private sector jobs currently available to the high quality younger people we seek do not represent one's lifetime work. But then, neither does the military to most. Still, maintenance of adequate pay levels is essential to fulfill our recruiting objectives.

Collaterally, the retention picture is not improved by less than comparable military pay growth. Skilled personnel are in demand in the private sector. Our biggest long-term challenge is to ensure that pay increases keep pace with those occurring in the private sector and that other compensation-related items are maintained at appropriate levels. If not, our careerists may not be persuaded to continue a military career.

The challenge is how much can the military compensation system be adjusted given private sector wage growth, reduced inflation, increasing unemployment, and recent force manning success. The fiscal realities of the day are recognized; but, we cannot permit the government to be perceived as an "unreliable employer."

COST-OF LIVING-ADJUSTMENTS

Senator STEVENS. You are doing a great job, I think.

One of the things about this budget resolution that bothers us the most is the problem of disparity in the COLA's and what we are going to do. That is what that phone call was about. The whole question is what do we do with these COLA's? Yet, what do we do if we don't do something about them, because if we don't do something about them this year, all your budgets will be cut next year a great deal more than $5 billion.

It is a great problem for us. I am obviously very disturbed about some of these increases that we think are controllable.

I think the 4 percent is much more connected with morale than the increase in PCS, for instance.

General THURMAN. Let me speak to that point if I might. If you look at the impact on who leaves, it is always the quality people who leave if in fact the pay gets out of kilter. The less qualified people will stay; the higher quality people will depart because they are in demand.

Senator STEVENS. The people who have the ability will leave, yes.

PCS COSTS

General THURMAN. Speaking of the PCS cost, the American Automobile Association estimates 28 cents a mile, and the Runsheimer at 20 cents a mile, all of which have been quoted by the CBO and the GSA as well. Those are indicators on mileage which, of course, takes care, as Dr. Korb indicated, of the dependent travel.

Those same agencies say it costs dependents anywhere from 9 cents a mile to 12 cents a mile for traveling, pay for lodging, transportation and food costs while they are on the move. Those are the sorts of uncommon costs that are borne by service members because we order them around.

We think we ought to pay people if we order them around.

You asked about the impact of the change in PCS costs. As you know, quite a bit of our PCS cost is chargeable to entrants into the service and people who are exiting or separating from the service. Senator STEVENS. I would like to see that breakdown. That is an enormous figure this year.

General THURMAN. We are going to spend $188 million for accession only in fiscal year 1983; for separation, $199 million to let people who served well go back to American life; and for rotational travel overseas, $637 million.

Now if you take the amount that Dr. Korb indicated-$77 million-it would run our overseas tours from 36 months to 42 months. Overseas tours would be extended by 6 months in Europe. In Korea unaccompanied tours would go from 13 months to 18 months. That gives us some impact of what happens when you look at the current tours versus those that would occur after a large PCS cut.

What the long-range impact will be on morale or reenlistment or retention, I don't have the faintest idea at the instant. But that gives you some notion about that.

Senator STEVENS. Senator Rudman, any questions?

General THURMAN. Incidentially, I did not speak to the civilian pay raise. You know, an enormous decline took place while we had