If I could change one thing in personnel policy (7): Trust the market more, and trust the central planners much less

By Major Hank Waggy, U.S. Army

Best Defense personnel contest entry

The Army could learn a valuable lesson from the National Football League — no, not the dangers of systemically understating the risk of traumatic brain injury and the accompanying long-term consequences. Rather, the Army should consider the NFL as an organization that uses a regulated market to allocate its human capital across a wide spectrum of subordinate organizations, allowing the price of talent to float largely free of constraints. In short, the salary cap regime in the NFL should serve as an example for reforming the Army’s officer personnel allocation process.

The Army often mentions the talent market in its discussion about officer talent management, but the reference to a market normally ignores the role of prices. Simply having suppliers (the officer corps) and consumers (Army units) does not create an efficient market, as consumers will demand more talent than is available and suppliers will not create enough talent. Free-floating prices in the talent market would assure that the right talent flows to the right unit and would create incentives for officers to develop the most in-demand skills. With universally applied rules to govern the talent market, the forces of supply and demand could manage the Army’s talent distribution with far more efficiency than its current centralized bureaucracy.

The inefficiency of the current system overseen by Army Human Resources Command (HRC) deserves some exploration. As a former assignment officer myself, I often faced a scenario similar to the following example. Assume in a simple scenario that two officers are available for an assignment, one of whom is universally described as high talent and one most succinctly described as low talent. Now assume that two ostensibly similar units need officers of their particular rank and specialty. How should HRC allocate the two officers? HRC has no tools that can efficiently answer this question, because HRC cannot determine which unit needs a higher quality officer. HRC could ask the unit commanders, but unit commanders will always ask for more talent rather than less. HRC could ask the officers where they want to go, but most officers will know less about which location will professionally benefit them than HRC will (conversely, officers know far more than HRC about which location will benefit them personally). The more efficient solution would entail the high talent officer going to the unit that will expect more from the officer, while the low talent officer would go to the unit that expects less. Because HRC cannot determine the answer, it can only do as well as a coin flip. When the example expands to the hundreds of officers moving at any given time, the likelihood of an efficient outcome declines precipitously.

Prices in the talent market could solve the problem. The unit that requires more talent would likely pay a higher price for talent than the unit that requires less. As with any auction, the good in question goes to the highest bidder. Prices reflect the priorities of the consumer, including consumers of talent. I don’t own a BMW because the cost does not line up with my priorities, even though I recognize that German engineering would be an upgrade over my Hyundai. Likewise, units would acquire talent in line with the priorities of the commander, reflecting what the commander finds important. Fortunately, the NFL can serve as a suitable proxy. Like the Army, the NFL has a set number of teams, high barriers to entry, and different skill set requirements for numerous individual positions. A talent market for the Army could borrow many of the same features.

How would the Army establish a functioning talent market? First, establish a salary cap. Because we are in an era of declining financial resources, a new personnel allocation process should not add personnel costs to the Army. Instead, the salary cap should be based on the current salary of officers of their particular rank. For instance, let’s say that a unit has ten majors. The salary cap would be the combined base salary of ten O4s. If a unit bids more than the base salary for a high talent officer, someone else in that unit must be paid less than the base salary. To increase the level of talent in a unit, a unit must do one of two things: the unit can let other high talent, high price officers depart the unit (freeing up space under the salary cap) or the unit must also accept a lower talent officer (at a lower price). I would recommend increments of 10% as the standard of measurement; a unit could offer an available officer anywhere between 30% less to 30% more than the average base salary for that grade. If our unit is authorized for ten majors, the unit can use any combination of plus or minus 30%, so long as the average salary does not exceed a 0% increase. A standardized measurement like 10% increments will ease the accounting burden across the Army and provide for greater oversight. In the end, a salary cap would keep personnel costs in line while preventing any unit from acquiring more than its fair share of talent, as the Army cannot afford a low-talent unit despite dramatic differences in basing locations, missions, and reputations.

Secondly, the Army must establish a mechanism to allow suppliers and consumers to meet each other. The private sector already does this through social media like LinkedIn, and the Army would be well served to hire this function out. A talent marketplace would allow units to advertise their vacancies and officers to sell their skills, experience, performance, and potential. Units would signal their demand for talent through the price that they offered, and thus would attract more interest from talented officers. Likewise, low-talent officers would see which units are their best fit based on the lower prices available to them.

Finally, the Army must allow officers to decide if they want to join a unit and units to decide when an officer leaves. Every assignment decision would be a voluntary contract, with both the officer and unit agreeing to the assignment. Thus, the Army would not dictate a particular assignment. Once at a unit, the unit should decide when the officer should leave — assuming a minimum period of service (say, two years) and a maximum period of service (maybe four years). If the unit decides that a particular officer should leave, the unit would provide the officer with six months to find his next assignment while freeing salary cap space to bid for a new officer.

Some would say that it is unseemly to pay some officers more than others. The Army crossed that bridge long ago, whether paying hazardous duty pay to paratroopers or bonuses to doctors and lawyers. A talent market merely extends the tradition in a more targeted fashion, paying more to those most in demand while paying less to those least in demand.

HRC’s role in the personnel universe would change with a functioning talent market. Of course, a market requires a certain degree of oversight, ensuring such things as salary cap compliance or minimum and maximum assignment duration. HRC’s traditional role as the centralized manager of individual personnel decisions would, however, no longer be required. The market would replace the bureaucratic central planner.

A true talent market, with floating prices, consistent rules, numerous suppliers, and varied consumers, would accomplish a great deal for the Army. Commanders could prioritize which specialties require the most talent, certain to change over time as missions and personalities change. High talent officers would be paid more and would know which units most want their services. Low talent officers would flow to the units that can make best use of them at that time. All officers would be encouraged to acquire the skills and experience most in demand by units; naturally, as more people acquire that particular talent, the price of that talent will decline. The Army could definitively know what talent is most in demand, particularly important as it decides where to invest its developmental budget. A true market, through the magic of prices, can and should allocate officers across the Army.

Major Hank Waggy is an Army Military Intelligence officer currently stationed in Colorado. The views expressed are his alone and do not necessarily reflect those of the Department of the Army or the Department of Defense.

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