MEGAN MCARDLE: The Problem With Military Pensions:

I think there’s another problem with rejiggering the Army’s pension schedule, and that’s the way it interacts with the “up or out” system that the military uses for officers’ careers. Basically, officers who don’t get selected for promotion get fired.

The military is not the only institution that uses this method. It’s also popular with consultancies, law firms and investment banks. In my humble opinion, that system is archaic and barbaric, and whatever it gains you in reduced payroll costs, it loses you in accumulated human capital, and it also earns you a backstabbing corporate culture.

Of course, no one asked me, and I expect that those sorts of firms will continue to use up-or-out pyramids for the foreseeable future. However, what do all these firms have in common with each other, and not with the military?

They pay really well. The senior people who survived the tournament get paid even better, of course. But even the entry-level jobs pay better than most of the alternatives.

The opposite is true in the military. It pays badly in the beginning and it pays badly at the end, relative to what those folks could have been making if they’d been steadily moving up through the ranks in a normal industry. There are all sorts of ancillary benefits, of course, but also all sorts of ancillary costs, such as the fact that your employer expects you to pick up and move your whole family somewhere else every few years … which is not just inconvenient but, in this modern day, plays hell with the career prospects of your spouse.

Military pensions are extremely generous compared to those in the private sector, but without them, we might have to pay more, or watch the quality of the mid-career officer corps decline. Note that the biggest industry that uses the up-or-out system without paying big salaries — academia — makes up for it by giving the winners a paycheck for life, which is even more extreme than a military pension.

Though I wonder how long that will persist.