Increasing the effectiveness of Navy retention compensation by evaluating different auction compensation formats

Abstract

With the U.S. military under intense scrutiny to cut costs, the Department of Defense must determine ways to use its limited resources more efficiently. One financial incentive ripe for change is the retention bonus. This compensation tool, used by the military to retain highly qualified individuals, could be harnessed more effectively with an auction mechanism for distribution. This thesis studies three different types of auctions, and examines which auction would be utilized best by the government as a retention tool. The three auctions analyzed were a sealed bid-discriminatory auction, a sealed bid-uniform auction and a sequential bid-uniform auction. The results of the experiment showed that discriminatory auctions fared best overall. Sealed bid-discriminatory auctions had a significant savings of 5.1% over sealed bid-uniform auctions and a 10.1% savings over sequential bid-uniform auctions.