The overall continuation rate for officers shows a similar trend (see Figure 4), and rates for pilots and nuclear officers are a particular concern. These groups of people play key roles in the accomplishment of our mission, and we can ill afford either to allow these trends to continue or to permit their expansion to the broader military population.

Most of the retention curves now have a noticeably downwa slope, indicating that we have wrung the last retention benef from the compensation improvements enacted in the early 1980s

Reenlistment Bonuses. While annual comparability pay adjust are designed to maintain overall retention levels, the Select Reenlistment Bonus Program is designed to preclude career for shortages in key skills, if possible; if not, it helps to alleviate them. These specialties involve especially arduous duty, highly developed skills, or mission-critical assignment (e.g., Aviation Systems Repair, Electronic Warfare, Air Controller, Infantry). Bonuses provide our only capability t retarget resources quickly to accommodate changes in retentio

Selective reenlistment bonuses are paid to members who r or extend for at least 3 years. They enable the Services to extensive investments in training and experience in highly-sk people and avoid the substantial accession, training, and rea costs associated with replacing them.

Bonus expenditures for FY 1987 were well below FY 1986, this program austerity will continue through FY 1989. I have already described declining retention in the higher-technolog skills; these trends in bonus funding levels limit our abilit maintain critical skill manning if the retention turndown accelerates, increasing risks. I ask your support for full funding of our request for this cost effective program.

Pilot Retention. The readiness of our forces dictates that find a solution quickly to an unacceptably high loss of pilot While no immediate problems exist in either the Army or Mari Corps, the most recent estimate of the Navy shortfall is abo 1,200 pilots in the mid-grades (lieutenants and lieutenant

Despite a decrease of approximately 1,400 pilot requirements over the next 5 years, the inventory will dip below requirements in FY 1989. The shortfall will grow to about 2,500 by FY 1993. These pilot retention problems result primarily from unprecedented commercial airline hiring that will continue well into the 1990s.

We are developing a legislative proposal that would provide a flexible new bonus program to address each Service's unique problems. The proposed budget includes funding for this important initiative. While the bonus program is the centerpiece of our compensation initiatives to stem the continuing losses, we also are working other remedies, such as reducing nonflying workloads, improving the work environment, extending active duty service obligations, and new accession programs. Many of these nonmonetary management initiatives will, however, take several years to implement fully. We need the bonus program to solve the existing problem, which will continue to grow if we do not act now.

Nuclear Officer Shortages. The Department also is experiencing a shortage of senior, experienced, nuclear-trained naval officers. The current shortage in the submarine community of 516 officers in the ranks of lieutenant commander through captain amounts to 28 percent of the requirements in those grades. Retention among nuclear submarine officers has declined from a high of 48 percent in FY 1985 to 39 percent in FY 1987. The nuclear surface community is only marginally better off, with 45 percent retention in FY 1987. Retention in both communities is below the rates needed to sustain the mid-grade requirements. At the same time, we have been unable to increase accessions sufficiently to make up manning shortfalls.

Several initiatives have been undertaken to combat this declining trend, including expansion of shore duty opportunit: increased opportunities for post-graduate education, an incre in Nuclear Officer Continuation Pay from $9,000 to $10,000 per year, and--with the support of Congress--an increase in Submar Pay and an extension of SPOT promotion authority for selected nuclear-qualified lieutenants filling lieutenant commander bil

We are hopeful that these initiatives will improve the current situation, but long-term progress will require sustai effort and your continuing support for these crucial incentiv programs.

Medical Shortfalls.

The Assistant Secretary of Defense for Health Affairs leads the Department effort to address the war medical shortfalls which have been of such concern to this Committee. Recruiting, retention, and compensation initiative play a key role in supporting those efforts. Although a subsequent hearing will address these matters in more detail, the bear mentioning in this context.

The Joint Recruitment Advertising Program has worked clos with Health Affairs to support the publicity and direct mail campaigns currently underway, and will place paid advertisemen into key markets. Moreover, the legislative support provided this Committee to increase the maximum accession and retiremen ages and to authorize more flexible recruiting and retention incentives are beginning to show some results. Action by this Committee to remove the ceiling on special pays will also begi to take effect in FY 1989, if funds requested are provided by appropriations committees. We are extremely interested in resolving these shortfalls, because the quality of health care

and retention.

FY 1989 RECRUITING AND RETENTION RESOURCES

As I have shown, we face real challenges now in attracting and retaining the right people, and those challenges will grow tougher in the years ahead. Although the problems are significant, and there is some risk that the Department could fall short of its goals, the risks are by no means insurmountable.

Our program is based upon a balanced mix of recruiting and retention incentives designed to appeal differentially to particular segments of the recruiting market and to retain those with skills (e.g., pilots) that are especially critical to mission accomplishment.

No single incentive or program can satisfy all

the diverse requirements of the Services. The Montgomery GI Bill, recruiting resources, enlistment bonuses, and recruitment advertising work together. We are conducting a cooperative study with the Army, as requested in the FY 1988 DOD Appropriations Act, to increase our knowledge of how the mix of these incentives can best be balanced to help meet Service requirements for quality people. We will keep the Congress advised as we obtain further information.

Recruiting and Advertising Resources. Tables 11 and 12

summarize the Active and Reserve Force FY 1987 actual, FY 1988 programmed, and FY 1989 budgeted recruiting and advertising

resources.

The FY 1989 request for active force recruiting resources i approximately $37.3 million (or about 2.6 percent) more than the FY 1988 program. Analysis of the difference in funding levels