The Leipziger Volkszeitung newspaper said the draft law foresees a triple system of financial and other incentives, including drivers' licenses, leisure-time perks and continued education opportunities.
Soldiers would receive an additional €19.20 over the standard service pay rate each month. New volunteers would also receive monthly bonuses of €100 for staying in the military, according to the paper. For each month served, soldiers would receive discharge pay of €76.80.
Under the draft law, the final round of conscripts would be drafted on May 1, 2011. The government hopes the planned pay improvements will encourage most young recruits drafted shortly before the official end of compulsory service to stay on with the military.
Senior members of Chancellor Angela Merkel's Christian Democrats (CDU) and their Bavarian sister party, the Christian Social Union (CSU), backed the move to suspend conscription in late September. Defence Minister Karl-Theodor zu Guttenberg had argued that suspending compulsory service was an essential reform of the country's armed forces.
On Thursday, leaders of Merkel's coalition government agreed on troop reductions in the Bundeswehr, from 240,000 to 185,000 soldiers. Professional soldiers would account for most of that number, with 15,000 volunteers rounding out the ranks.
Yet members of the political opposition have criticised the government's plans: The Social Democrats' defence expert Rainer Arnold told German news agency DPA that he worried the reforms were being "poorly done," with a little more than half a year left before the July 1 deadline.