Adding a Performance-Based Component to Surface Warfare Officer Bonuses: Will It Affect Retention?

Abstract

The Surface Warfare Officer (SWO) community has difficulty retaining mid-grade officers, as is evident by the considerable shortfall between Officer Programmed Authorization and the current officer inventory beginning at 9 years of commissioned service. The objective of this study was to analyze the 13-year retention effect of adding a performance-based component to the SWO Critical Skills Bonus (CSB). By analyzing pay and personnel records from officer cohorts entering the Navy between 1987 and 2006, this study divided the sample of 1,331 SWOs into three performance tiers based on promotion timing to Lieutenant Commander (O-4). Probit regressions showed that top performers exhibited higher retention rates than lower-performing peers, though pay had a stronger retention effect among low performers. Additionally, the Commander (O-5) promotion rate for high performers was triple the promotion rate of lower performers. Expanding upon performance-tier differences, optimization models predicted a more efficient SWO CSB allocation while retaining the highest performers and remaining within budgetary constraints. Thus, research recommends adding a performance-based component to the SWO CSB, which will maximize retention of high-performing officers. Furthermore, the Navy can realize additional savings by adopting cafeteria-style bonus options, capitalizing on differences between the federal standard discount rate and personal discount rates.