Order Code IB10089
Issue Brief for Congress
Received through the CRS Web
Military Pay and Benefits:
Key Questions and Answers
Updated July 8, 2002
Robert L. Goldich
Foreign Affairs, Defense, and Trade Division
Congressional Research Service ˜ The Library of Congress

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CONTENTS
SUMMARY
MOST RECENT DEVELOPMENTS
BACKGROUND AND ANALYSIS
1. Why Did the Adequacy of Active Duty Military Pay Become a Major Issue
Beginning in the Late 1990s?
2. What Effects Could the September 11, 2001 Terrorist Attacks on the United States
and the U.S. Military Response to Them Have on Military Compensation and
Benefits?
3. What Kinds of Increases in Military Pay and Benefits Have Been Considered or Used
in the Past?
4. How Are Each Year’s Increases in Military Pay Computed?
5. What Have Been the Annual Percentage Increases in Active Duty Military Basic Pay
Since 1993 (FY1994)? What Were Each Year’s Major Executive and Legislative
Branch Proposals and Actions on the Annual Percentage Increase in Military Basic
Pay?
6. Is There a “Pay Gap” Between Military and Civilian Pay, So That Generally Military
Pay Is Less than That of Comparable Civilians? If So, What Is the Extent of the
“Gap”?
7. What Recent Changes Have Been Made in Active Duty Military Pay and Benefits
(Other Than the Annual Percentage Increase in Basic Pay)?
8. Congressional Action This Year–FY2003 Legislation–on Military Pay and Benefits
(Other than the Across-the-Board Pay Raise)
FOR ADDITIONAL READING

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Military Pay and Benefits: Key Questions and Answers
SUMMARY
Congress is most likely to indicate con-
Still at issue are what additional pay and
cern about military pay and benefits when the
benefit increases may be warranted. Of partic-
military services are having problems with
ular interest is the balance between across-
recruiting or career retention or when there are
the-board percentage pay raises and ones
reports that military personnel are being paid
targeted by grade, years of service, and occu-
at a level that forces them and their families to
pational skill; and between cash compensation
live at a much lower standard of living than
on the one hand and improvements in non-
comparable civilians.
monetary benefits such as housing, health
care, and installation services on the other.
In the mid and late1990s, these concerns
again came to the attention of Congress.
The across-the-board increases in mili-
Some of the factors believed to be responsible
tary pay discussed each year relate to military
for recruiting and retention problems were the
basic pay, which is the one element of mili-
end of the Cold War, private-sector job oppor-
tary compensation that all military personnel
tunities due to the 1990s economic boom,
in the same pay grade and with the same
increasing desire for and availability of a
number of years of service receive. The annual
college education for new high school gradu-
percentage increase in basic pay is linked in
ates, rising consumer living standards that put
statute to each year’s annual increase in fed-
military housing and lifestyles at a disadvan-
eral civil service pay, but over the past two
tage, and greater sensitivity among personnel
decades Congress has usually overridden the
to family separation and frequent overseas
permanent formula and enacted its own per-
rotations.
centage raise, though sometimes it was the
same as the permanent formula. A key issue
In formulating its response, Congress
in determining the annual percentage increase
was particularly mindful of the gross down-
is whether a “pay gap” exists between mili-
turns in recruit quality that occurred in the late
tary and civilian pay that favors civilians.
1970s, in large part because of inadequate pay.
Comparing the two is difficult, because nu-
Consequently, Congress – and belatedly, the
merous factors and components of each can-
executive branch – responded with larger
not readily be compared to the other. Since
across-the-board pay raises, increased special
the early 1990s, in addition to each year’s
pays and bonuses, more recruiting resources,
across-the-board raise, most changes in mili-
and repeal of planned military retired pay
tary benefits have favored individual service
reductions for future retirees. In the midst of
members. These include changes in the cash
these efforts, the terrorist attacks of September
allowance received by personnel not living in
11, 2001, took place, providing a sense of
military housing; a drastic overhaul of military
national unity and military purpose that a
health care; and repeal of military retired pay
direct attack on the homeland can produce.
cuts first enacted in 1986. Almost all legisla-
Recruiting has improved substantially, and
tive changes in military pay and benefits are
although career retention has been less
contained in the annual National Defense
responsive, it too appears to have turned a
Authorization Act; both the House and the
corner. It is, however, almost impossible to
Senate have passed their versions of the
disaggregate the effects of each of these fac-
FY2003 defense authorization; only confer-
tors, especially the qualitative ones.
ence action remains.
Congressional Research Service ˜ The Library of Congress

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MOST RECENT DEVELOPMENTS
On June 27, 2002, the Senate passed its version of the FY2003 National Defense
Authorization Act. It would provide, as does the House version, an across-the-board
military pay raise of a minimum 4.1%, and an average of 4.7%, to be effective January 1,
2003, with some career personnel receiving 5-6.5%. A variety of other special pays and
benefits were also increased.
BACKGROUND AND ANALYSIS
1. Why Did the Adequacy of Active Duty Military Pay Become a
Major Issue Beginning in the Late 1990s?
Since the end of the draft in 1972-1973, the “adequacy” of military pay has tended to
become an issue for Congress for one or both of two reasons: if it appears that
! the military services are having trouble recruiting enough new personnel, or
keeping sufficient career personnel, of requisite quality; or
! the standard of living of career personnel is perceived to be less fair or
equitable than that which demographically comparable civilians (in terms
of age, education, skills, responsibilities, and similar criteria) can maintain.
The first issue is an economic inevitability on at least some occasions. In the absence
of a draft, the services must compete in the labor market for new enlistees, and — a fact
often overlooked — have always had to compete in the labor market for more mature
individuals to staff the career force. There are always occasions when unemployment is low,
and hence recruiting is more difficult, and others when unemployment is high and military
service a more attractive alternative. The second situation, while often triggered by the first,
is frequently stated in moral or ethical terms. From that viewpoint, even if quantitative
indexes of recruiting and retention appear to be satisfactory, it is argued that the crucial
character of the military’s mission of national defense, and its acceptance of the professional
ethic that places survival below mission accomplishment, demands certain levels of
compensation. There are, of course, a wide range of views as to what constitutes acceptable
compensation levels, if acceptability is measured by any index other than that of economic
competitiveness.
The last time Congress felt it had to deal with inadequate active duty pay levels was in
the late 1970s and early 1980s. Problems in recruiting sufficient new enlistees, and retaining
enough career personnel of adequate quality, led to what most of those involved with the
issue considered a real crisis. Congressional response over the next several years included
back-to-back pay raises in 1980 (11.7%) and 1981 (14.3%) that increased basic pay by
almost 28%, raised special pays and bonuses, and created (over DOD objections) the new,
and immediately highly successful, Montgomery GI Bill. These factors, coupled with a rise
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in unemployment in the early 1980s, led to a complete turnaround in recruiting and retention.
By the mid-1980s recruit quality was judged to be at unprecedented high levels, recruiters
could be selective in taking young men and women, and career force shortages had vanished.
Beginning in the mid-1990s, several new factors caused recruiting and retention
problems severe enough to force Congress to once again deal with this issue. Among the
factors cited by analysts were:
! A public impression that the end of the Cold War, the breakup of the Soviet
Union, and the defeat of Communism in both the former USSR and those
Eastern European countries that had been Soviet satellites, meant that
military service was no longer interesting, relevant, or even available as a
career option.
! The post-Cold War drawdown in active duty military manpower by 40%
greatly disorganized military personnel management, reducing both real and
perceived enlistment and career retention opportunities.
! Unprecedented economic expansion and the consequent explosive growth
of actual and perceived civilian career options – a fundamental situation that
still obtains, even with the economic slowdown of the past year – further
reduced the appeal of military service or a military career.
! A rise in civilian consumer living standards (goods and services such as
housing, health care, retail stores, and consumer goods) against which
military families measure their own economic success or failure.
! Concerns over increased family separation, contingency operations, overseas
deployments, and operations and training away from home, whether “home”
was in the United States or in foreign countries.
! A decreased propensity for military service among young people for reasons
other than those listed above. Although there was little hard data, among
reasons mentioned were anti-military parents and educators; skepticism
about new kinds of military missions such as “operations other than war,”
“peacekeeping,” or “peace enforcement”; and the availability of government
educational assistance from other sources (“the GI Bill without the GI”).
2. What Effects Could the September 11, 2001 Terrorist Attacks on
the United States and the U.S. Military Response to Them Have on
Military Compensation and Benefits?
It is not yet clear what effects the ongoing war against terrorism that began with the
terrorist attacks of September 11, 2001 will have on military pay and benefits. Recruiting
and career retention, especially the former, improved substantially in FY2000 and FY2001.
However, the war against terrorism makes it difficult to disaggregate the effects of recruiting
and retention initiatives from other policies that have affected personnel strengths and
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quality, such as the invoking of “stop-loss” restrictions (authorized by 10 USC 12305,
formerly 673c) that prevent military personnel in occupational specialties designated by
DOD from separating or retiring from active duty; anticipation of future pay increases in
addition to those that have actually taken effect, and the sense of national unity and military
purpose that a direct attack on the homeland can produce.
A wide range of possible additional effects on military compensation of the current
situation can therefore be postulated, many of them related to future combat operations.
Continued popular support for the President, for the war against terrorism, and for the Armed
Forces could continue to make recruiting easier and improve career retention, decreasing the
requirement for special pays and bonuses and diminishing pressure to increase the annual
comparability raise above what the permanent statutory formula provides each year.
However, the requirement to pay active duty pay rates to the tens of thousands of reservists
brought on active duty will push manpower costs up, as will large-scale overseas
deployments. If it is decided that a permanent increase in active duty manpower strengths
is required to support long-term anti-terrorism capabilities, then that too will increase total
active duty pay costs.
Finally, the events of September 11 and their shock waves through the American
economy have contributed considerably to raising both actual unemployment and the
perceived extent of unemployment, attitudes that are always good for recruiting, if bad for
the country as a whole. Such recruiting might be even more popular, in that psychologically,
those who join the armed forces, or decide to stay in, would do so to strike at the cause of
America’s problems. These factors would reduce the need for spending on both bonuses and
higher across-the-board pay increases, in terms of military pay being competitive. They
would not, however, affect countervailing desires that might be felt to provide more liberal
pay and benefit increases as a way of showing gratitude to the armed forces.
A case can be made that all of these factors may well operate at the same time and that
they could, in a crude sense, cancel each other out. A possible need to raise pay to attract
recruits affected negatively by the prospect of combat could be counterbalanced by those
attracted to service out of patriotism, anger, and likely adventure. Career personnel who stay
in to fulfill their lifetime missions in a time of need – and because of liberal retention
bonuses and special pays – could be balanced by those who feel ready to “pass the torch” to
younger people and retire rather than face more combat or overseas deployments, regardless
of how much money they were offered.
3. What Kinds of Increases in Military Pay and Benefits Have Been
Considered or Used in the Past?
Many military compensation analysts, whenever the issue of the need for more
compensation to deal with recruiting and retention problems arises, have strongly criticized
across-the-board rather than selective pay raises. They argue that across-the-board increases
fail to bring resources to bear where they are most needed. Percentage increases targeted on
particular pay grades and number of years of service (often referred to as “pay table reform”)
and special pays and bonuses targeted on particular occupational skills, they suggest, would
maximize the recruiting and retention gains for the compensation dollars spent. If, for
instance, the Marine Corps is desperately short of electronic equipment repair technicians,
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but the Air Force has excess dental technicians, why should both skills get the same
percentage pay raise and nothing else? Across-the-board increases also affect a variety of
other costs; retired pay, for instance, is computed as a percentage of basic pay. (However,
there have been proposals to in fact include special pays and bonuses in retired pay
calculations, precisely to provide an additional long-term monetary incentive for special pay
and bonus recipients to stay in the service.)
The services already do a great deal of such targeting, having maintained a large system
of special pays and bonuses since the end of conscription almost 30 years ago. Personnel
managers report no indication that such targeted compensation has had the deleterious effects
on morale and cohesion that some had feared. Across-the-board pay increases, however, are
believed by many to have the advantages of simplicity, visibility, and equity. If everyone
gets a similar percentage increase, nobody feel, or can claim, that he or she has been left out.
It also shows up immediately, in the person’s next paycheck, rather than months or years
later when a particular individual is next eligible for a lump sum special pay or bonus (some
special pays and bonuses are paid monthly or biweekly, as part of regular pay). It appears
certain that, as in the past, overall increases in military cash compensation over the next
several years will combine both across-the-board and targeted increases. Both of these
increases, because of their broad appeal, may well be the most psychologically sound
approach in improving recruiting and retention as much as possible. In addition, there is
bipartisan support for major increases in Montgomery GI Bill benefits, although these tend
to be among the most costly benefit increases being considered.
This iteration of the reasons for current recruiting and retention problems is not meant
to imply that these problems can be solved only by increasing military pay or that increased
pay by itself can necessarily solve or ameliorate them. Many components of the military
compensation system whose effective management and cost advantages are important to
recruiting and retention efforts, especially the latter, do not involve cash pay. These include
military health care; military housing; permanent change of station (PCS) moving costs and
policies; exchanges, commissaries, and other military retail facilities; and military
recreational facilities. A wide range of views about existing military personnel management
practices suggest that the services’ requirements for both new enlistees and career people
could be significantly reduced by changing often long-standing and inter-related assignment,
promotion, career development, or retirement policies. Survey research also reveals that the
sense of patriotism, public service, and esprit de corps found in capable and combat-ready
armed forces is extremely significant to both new enlistees and career members.
Furthermore, there are always limits to what increased compensation, whether cash or
in-kind, can do to help any organization cope with personnel difficulties. Job and career
satisfaction; public and elite views of the importance and legitimacy of the military as an
institution; unit morale; success in operational deployments and especially in combat – these
may well be independent of compensation variables. High “scoring” in these intangibles,
especially for a unique organization and culture like the Armed Forces, can and frequently
does balance more tangible problems in compensation. However, few analysts believe that
recruiting and retention rates can be brought up to service target levels without substantial
increases in pay, so long as an economic expansion continues to generate higher-paying job
opportunities in the civilian sector. Many long-time observers seem to feel that money alone
cannot keep a person in the military for a full career if the person does not like the military
culture; they assert that the lifestyle is too demanding and too arduous for most. At the same
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time, it is argued that people can be driven out of the military if their compensation and
living standards are not at least somewhat close to those of their demographic and
educational counterparts in civilian life.
4. How Are Each Year’s Increases in Military Pay Computed?
Definitions. The across-the-board increases in military pay discussed each year relate
to military basic pay. Basic pay is the one element of military compensation that all military
personnel in the same pay grade and with the same number of years of service receive. Basic
allowance for housing, or BAH, is received by military personnel not living in military
housing, either family housing or barracks). Basic allowance for subsistence, or BAS, is
the cost of meals. All officers receive the same BAS; enlisted BAS varies, based on the type
and place of assignment. A federal income tax advantage accrues because the BAH and
BAS are not subject to federal income tax.
Basic pay, BAH, BAS, and the federal income tax advantage all comprise what is
known as Regular Military Compensation (RMC). RMC is that index of military pay
which tends to be used most often in comparing military with civilian compensation;
analyzing the standards of living of military personnel; and studying military compensation
trends over time, or by service geographical area, or skill area. Basic pay is between 65 and
75% of RMC, depending on individual circumstances. RMC specifically excludes all special
pays and bonuses, reimbursements, educational assistance, deferred compensation (i.e., an
economic valuation of future retired pay), or any kind of attempt to estimate the cash value
of non-monetary benefits such as health care or military retail stores.
Annual Percentage Increases in Military Basic Pay.
Military Basic Pay Raises Linked to Federal General Schedule (GS) Civil
Service Pay Raises. Permanent law (37 USC 1009) provides that monthly basic pay is
to be adjusted upward by the same “overall average percentage increase in the General
Schedule [GS] rates of both basic pay and locality pay for [federal] civilian employees,” and
is to “carry the same effective date.” The upward adjustment is based on the GS pay increase
calculated in accordance with the permanent statutory GS pay raise formula, regardless of
whether later statutes modify the actual GS raise paid in any particular year. It is not,
however, as is noted below, identical to the percentage increase in GS pay.
How GS Civil Service Pay Raises Are Computed. The GS formula employed
here is that specified in 5 USC 5303(a). It is based on (but is not identical to, as will be
discussed below) the increase in the Employment Cost Index (ECI) calculated by the
Department of Labor’s Bureau of Labor Statistics. The ECI measures annual percentage
increases in wages for all private-sector employees, although it can be subdivided to measure
increases in specific categories of such employees. The precise ECI increase used for pay
purposes is computed by comparing the ECI for the third quarter of the calendar year
preceding that in which the pay increase is budgeted with the ECI for the third quarter of the
year preceding the latter year. For example, assume the GS civilian pay raise for fiscal and
calendar year 2005, under current law to be first paid on January 1, 2005, is being computed.
The FY2005 federal budget that includes this pay raise will be debated and enacted in
calendar year 2004, beginning with the transmittal of the Administration’s FY2005 budget
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to Congress in early 2004. This latter budget, however, was prepared beginning in the
middle of 2003. The pay raise in this budget can only be based on the extent to which the
ECI for the third quarter of 2003 had increased over that for the third quarter of 2002. There
is thus a lag of approximately 6 months between the end of the ECI increase measuring
period and the transmittal of the proposed pay raise based on it to Congress and a lag of 15
months between the end of the ECI measuring period and the actual percentage increase in
civil service pay, and hence active duty military pay, on which it is based.
The actual percentage increase in GS pay is not the percentage increase in the ECI over
the time frame described. The applicable statute [5 USC 5303(a)]provides that the overall
increase in federal GS pay will be 0.5% less than the percentage increase in the ECI. The
money thus saved is frequently cited as being available to provide larger pay raises to federal
civilians in high-cost-of-living metropolitan areas within the United States, although there
is no statutory requirement than the “saved” money be used for this purpose. For example,
if there is a 5% increase in the ECI from the previous year, and the cost of raising all federal
GS pay by 5% would be $5 billion yearly, federal GS civil servants would actually be
guaranteed only a pay raise of 4.5%, costing a total of $4.5 billion. The $500 million thus
saved could, if the executive branch and/or Congress so desired, be applied to pay for raises
higher than 4.5% in high-cost-of-living areas. In this example, military personnel could thus
get a 4.5% pay raise. This formula led to the actual pay raises received in 1993 (FY1994),
1994 (FY1995), 1995 (FY1996), 1997 (FY1998), and 1999 (FY2000). [The statute does
allow the overall percentage increase to be allocated among the different pay grade and years-
of-service categories, subject to various limitations, rather than giving all personnel identical
percentage increases. This was in fact done in 2000. See 37 USC 1009(d).]
Temporary Suspension of Permanent Law to Give the Military Higher Pay
Raises. In 1999, the FY2000 National Defense Authorization Act in effect temporarily
suspended the above pay computation formula for the period FY2001-FY2006. Instead of
the military basic pay increase being 0.5% less than the full ECI increase, the amending
language provides that the annual raise will be the full ECI plus an additional 0.5% (i.e., a
full percentage point above what the longstanding permanent formula provides). Thus, in the
hypothetical example used in the above paragraph, under this 6-year suspension of the
permanent formula, the annual pay raise that military personnel would receive would be
5.5% rather than 4.5%.
Congress Usually Passes a Military Pay Raise Anyhow, Despite the
Permanent Formula. Despite the existence of this statutory formula, which would
operate each year without any further statutory intervention, Congress has severed the linkage
between military and federal civil service pay raises every year since 1980, with the
exception of 1982. The percentage increase in military pay has been identical to that granted
GS civilians in all but three years since 1980 (1981, 1985, and 1994, when Congress
provided a larger percentage increase in military pay). Even when the percentage increase
has been identical, however, in most cases Congress has explicitly reiterated the increase in
law rather than simply allowing the permanent statutory linkage to operate. Therefore,
although Congress may legislate the pay raise percentage, until recently it was been a pro
forma matter, and the operation of the permanent formula remains important in determining
what the percentage will actually be.
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Annual Increases in Basic Allowances for Housing (BAH) and
Subsistence (BAS). Housing (37 USC 403) and subsistence (37 USC 402) allowances
are paid to all personnel not living in military housing or eating in military facilities or using
field rations. Monthly BAH varies by rank, by whether the person has dependents, and, most
importantly, by location. Monthly BAS is uniform for all officers regardless of rank or
dependents, but BAS for enlisted personnel is computed daily and varies by locations and
the kind of eating facilities, military and civilian, deemed available. Annual increases in
BAH and BAS are both based on surveys of local housing and national food costs
respectively, and thus are not affected by the annual percentage increase in the ECI. (For
many years BAH and its predecessors and BAS were subject to the annual percentage
increase; this was not changed until the late 1990s.) There have been some proposals in
recent weeks, mentioned in the defense trade press, that BAH housing costs be surveyed
more frequently than once a year, due to rising housing costs generally. Particular emphasis
is placed by supporters of more frequent surveys on fast-rising electricity costs, notably for
heating and cooling, being faced by military personnel. In addition, the fact that BAS is a
fairly small amount and has long since ceased to bear any real relationship to food and dining
costs for individual servicemembers has led to some calls to merge BAS with basic pay and
reduce the complexity of military compensation and the need for BAS computations each
year.
5. What Have Been the Annual Percentage Increases in Active
Duty Military Basic Pay Since 1993 (FY1994)? What Were Each
Year’s Major Executive and Legislative Branch Proposals and
Actions on the Annual Percentage Increase in Military Basic Pay?
The following subsections itemize action on the active duty military basic pay increase
going back to 1993 (the FY1994 budget). Unless otherwise noted, all increases were
proposed to be effective on January 1 of the fiscal year indicated. The same is true of
discussions of future pay raises.
2002 (FY2003).
Statutory Formula. 4.1%. In October 2001, a report from the Bureau of Labor
Statistics stated that the Employment Cost Index (ECI) had risen 3.6% from the average for
the third quarter of 2000 to the third quarter of 2001. If permanent law is not superseded,
this means that the active duty military pay raise for FY2003, to be first applied to pay on
January 1, 2003, will be 4.1%–3.6% plus the mandated additional 0.5%, described below in
the subsection entitled “Suspension of Statutory Formula during FY2001-FY2006.”
Administration Request. Minimum 4.1%; average 4.8%. For the five top enlisted
grades (mid-level and senior noncommissioned officers), the Administration proposes
increases of 4.1%, 5.0%, 5.5%, 6.0%, or 6.5%. Some middle-grade warrant officers will
receive 5.5% or 6%, and some middle-grade commissioned officers will get 5.5% to 6.5%.
The cost is estimated at about $2 billion in FY2003.
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Congressional Action.
House Action. On May 9, 2002, the House passed its version of the FY2003 defense
authorization; it had been approved by the House Armed Services Committee on May 3. The
House bill included an across-the-board pay raise identical to the above-described one
proposed by the Administration. There had been earlier proposals for higher pay raises.
Representative Duncan Hunter had proposed spending an additional $5.1 billion in FY2003
to raise military pay to whatever levels were needed to eliminate a supposed “pay gap” with
civilian compensation. Earlier in 2002, Representative Ike Skelton had proposed an FY2003
pay raise the same as the FY2002 raise, which averaged 6.8%, at an FY2003 additional cost
of $800 million. On April 10, Representative Skelton had reiterated his support for a raise
larger than that proposed by the Administration, but – doubtless with the budget resolution
in mind – an increase of only 4.6% compared to the Administration’s 4.1%, costing an
additional $231 million in FY2003 rather than the extra $800 million of his earlier proposal.
It would appear, however, that the committee agreed with senior DOD manpower officials
who have stated that greater increases are not needed; they cite the upturn in recruiting and
retention in the past two years or so as indications that the compensation increases of the late
1990s were sufficient to deal with the recruiting and retention problems at that time.
Senate Action. The Senate Armed Services Committee reported its version of the
FY2003 defense authorization on May 15 (S.Rept. 107-151); as was the case with the House
bill, it endorsed the Administration’s pay proposal. The Senate passed the bill on June 27.
2001 (FY2002). Statutory formula: 4.6%. Administration request: numerous figures
for the “Administration request” were mentioned in the pay raise debate, depending on when
and which agency produced the figures. In general, however, they all proposed increases of
at least 5% and no more than 15% (the latter applying only to a very few individuals),
depending on pay grade and years of service. Final increase: Eventually, the FY2002
National Defense Authorization Act (Sec. 601, P.L. 107-107, December 28, 2001)endorsed
an “Administration request” of between 5 and 10%, depending on pay grade and years of
service. These increases are the largest across-the-board percentage raises since that of
FY1982, which took effect on October 1, 1981. The latter was a 14.3% across-the-board
raise, which followed an 11.7% raise the previous year, FY1981, resulting in a 2-year raise
of almost 28%. This was principally in response to the high inflation of the late 1970s.
2000 (FY2001). Statutory formula: 3.7% (based on the 1999/FY2000 legislation,
above; the original statutory formula would have led to a proposed raise of 2.7%).
Administration request: 3.7%. Final increase: The FY2001 National Defense Authorization
Act (Section 601, P.L. 106-398, October 30, 2000; 114 Stat. 1654A-1 at A-143) approved
the 3.7% figure. In addition, as was the case in the previous year, additional increases
averaging 0.4% (based on the size of the across-the-board raise the amount of money used
would have funded; the range of additional percentage raises was between 1.0 and 5.5%)
were provided to middle-grade officer and enlisted personnel, to be effective July 1, 2001.
1999 (FY2000). Statutory formula: 4.8%. Administration request: 4.4% on January
1, 2000, but in addition, on July 1, 2000, a wide range of targeted increases averaging an
additional 1.4% (again, based on the size of across-the-board raise the cost of the targeted
increases would finance) in mid-level officer and enlisted grades’ pay levels. Final increase:
The FY2000 National Defense Authorization Act (Section 601, P.L. 106-65; October 5,
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1999) raised the January 1, 2000 increase to 4.8%, and accepted the July 1, 2000 targeted
increases.
Suspension of Statutory Formula during FY2001-FY2006. The FY2000
defense authorization contained a 6-year suspension of the existing statutory formula, which
became effective in FY2001. In enacting this suspension, the House version would have
required that the full ECI increase (not the ECI less 0.5%) be used in calculating the annual
pay raise starting in FY2001 and thereafter. The Senate version would have required that the
annual raise be the full ECI plus 0.5% (i.e., a full percentage point above what permanent
law then read) during FY2001-FY2006. The Senate version prevailed in conference.
1998 (FY1999). Statutory formula: 3.1%. Administration request: 3.6%. The House
approved 3.6%, or whatever percentage increase was approved for federal GS civilians,
whichever was higher. The Senate approved 3.6%. Final increase: The FY1999 Strom
Thurmond National Defense Authorization Act (Section 601, P.L. 105-261; October 17,
1998; 112 Stat. 1920 at 2036) approved the House alternative, which resulted in a 3.6%
military increase, as GS civilians also received 3.6%.
1997 (FY1998). Statutory formula: 2.8%. Administration request: 2.8%. Final
increase: FY1998 National Defense Authorization Act (Section 601, P.L. 105-85, November
18, 1997; 111 Stat. 1629 at 1771): 2.8%.
1996 (FY1997). Statutory formula: 2.3%. Administration request: 3.0%. Final
increase: The House and Senate both approved the higher Administration request of 3.0%,
and it was therefore included in the FY1997 National Defense Authorization Act (Section
601, P.L. 104-201, September 23, 1996; 110 Stat. 2422 at 2539).
1995 (FY1996). Statutory formula: 2.4%. Administration request: 2.4%. Final
increase: Congress also approved 2.4% in the FY1996 National Defense Authorization Act
(Section 601, P.L. 104-106, February 10, 1996; 110 Stat. 186 at 356).
1994 (FY1995). Statutory formula: 2.6%. Administration request: 1.6%; one percent
less than the statutory formula. Final increase: The FY1995 National Defense Authorization
Act (Section 601, P.L. 103-337, October 5, 1994; 108 Stat. 2663 at 2779) authorized the
statutory formula figure of 2.6%.
1993 (FY1994). Statutory formula: 2.2%. Administration request: No increase;
military (and civil service) pay would have been frozen in FY1994. The Administration also
proposed limiting future civil service – and hence active duty military – pay raises to one
percentage point less than that provided by the existing statutory formula. None of these
proposals was adopted. Final increase: The FY1994 National Defense Authorization Act
(Section 601, P.L. 103-160, November 30, 1993, 107 Stat. 1547 at 1677) authorized 2.2%.
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6. Is There a “Pay Gap” Between Military and Civilian Pay, So That
Generally Military Pay Is Less than That of Comparable Civilians?
If So, What Is the Extent of the “Gap”?
The allegations of a military-civilian “pay gap” beg several questions:
! How can the existence of a gap be determined and the gap be measured?
! Is there a gap, with civilians or the military being paid more? If so, how
much of a gap?
! If there is a gap, does that in itself require action?
! What are the effects of such a gap?
A wide range of studies over the past several decades have compared military and
civilian (both federal civil service and private sector) compensation. In general, the markedly
different ways in which civilian public and private sector compensation and benefit systems
are structured, compared to that of the armed forces, makes it difficult to validate any across-
the-board generalizations about whether there is a “gap” between military and civilian pay.
Some advocates for federal civil servants suggest that federal civilian pay lags behind private
sector pay, which in turn leads some people, given the linkage between civil service and
military pay annual percentage increases, to infer that military pay lags behind private sector
pay. However, because the current statistic used to measure private sector pay, the ECI,
measures annual percentage increases and not dollar amounts, no such inference is really
possible.
Measuring and Confirming a “Gap”. It is extremely difficult to find a common
index or indicator to compare the dollar values of military and civilian compensation. First,
military compensation is much more complicated and composed of many more different
elements than is civilian compensation. Military cash pay include numerous separate
components; some are received by all military personnel and some, such as a wide range of
special pays and bonuses, are paid to select groups. One aspect of military pay, the federal
income tax advantage that accrues due to housing and meals allowances not being taxable,
has a dollar amount that is entirely dependent on each military member’s personal tax
situation. Which of these should be included in a military-civilian pay comparison? How can
some be included at all? Furthermore, total military compensation includes a wide range of
non-monetary benefits: the extensive military health care facility network, military retail
stores such as commissaries and exchanges; and military recreational facilities such as
theaters, gymnasia, hotels, and lodges. Few civilians work in organizations where analogous
benefits are provided. Attempts to facilitate a comparison by assigning a cash value to non-
cash benefits almost always founder on the large number of often arbitrary assumptions that
must be made to generate such an estimate.
Second, it is also extremely difficult, for obvious reasons, to establish a solid
comparison between military ranks and pay grades on the one hand, and civil service and
private sector job titles and pay levels on the other. The range of knowledge and skills,
degree of supervision, and scope of professional judgment required of military personnel and
civilians performing similar duties in a standard peacetime industrial or office milieu may
well be similar. When the same military member’s likely job in the field, possibly in combat,
is concerned, comparisons become difficult.
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Third, generally speaking, with some exceptions, the conditions of military service are
frequently much more arduous than those of civilian employment, even in peacetime, for
families as well as military personnel themselves. This aspect of military service is
sometimes cited as a rationale for military compensation being at a higher level than it
otherwise might be. These conditions include frequent moves for which moving allowances
never completely reimburse the military member; lengthy family separations, which are not
confined to overseas deployments but also result from field training or service at sea even
while stationed in the United States; and family disruption resulting from constant changes
of occupations and schools by dependents. On the other hand, the military services all
mention travel and adventure in exotic places as a positive reason for enlistment and/or a
military career, so it may be misleading to automatically assume it is only a liability.
Fourth, comparisons between different sets of compensation statistics, and the use of
these comparisons to determine what military pay should be, can yield very different results.
Comparing dollar amounts of pay received by various military pay grades with the dollar
amounts received by comparable federal civil service and private-sector positions (as noted
above, in itself a difficult comparison to make) may lead to different conclusions than
comparing the annual increases in pay for each position. The percentage increase in pay over
different time periods – in particular, the percentages that result from picking different base
years from which increases or decreases are computed – is more often than not very different.
Different indexes with different components can be used to determine compensation
changes. The yearly increase in the Consumer Price Index (CPI), which measures the cost
of a fixed list of various goods and products at any one time, is used to compute the annual
cost-of-living-adjustment (COLA) to military retired pay (and several other federal
retirement payments to individuals). The annual Employment Cost Index (ECI) determines
not pay levels, but percentage pay increases.
Finally, the level of specificity used in a pay comparison can lead to sharply differing
results, especially when the comparison is between private sector and federal pay as a whole,
both civil service and military. For instance, all Army colonels may, according to some
indexes, be paid roughly as much as federal civil service GS-15s, or as much as private sector
managers with certain responsibilities. Thus, those occupational specialties that are highly
paid in the private sector – health care, information technology, some other scientific and
engineering skills, are examples – are frequently paid considerably less in the military or in
the civil service. Other common subcategories for comparison, in addition to occupational
skill, include age, gender, years in the labor force, and educational levels.
Estimates of a Military-Civilian Pay Gap. Numerous comparisons of military and
civilian compensation in recent years have been cited to illustrate a gap that favors civilian
pay levels or refutes the existence of such a gap. Many of these reports lack precision in
identifying what aspects of military pay were compared with civilian pay; what indexes were
used to make the comparison, or the length of time covered by the comparison. Although
it is difficult to generalize, it would appear that most of those estimates which assert that
there is a pay gap in favor of higher civilian pay quote a percentage difference of between 7
and 15% in recent years. Most, if not all, of these estimates are across-the-board, comparing
all military personnel with all civilian workers in a very broad category.
Some estimates have been made that question the existence of a gap favoring civilians.
These tend to compare specific populations of military personnel with equally specific
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subcategories of civilians, using such criteria as age, occupational skill, and educational
level. Analyses of this nature appear to be less common than the across-the-board
comparisons, almost certainly because they are much more difficult to do in terms of time,
cost, and availability of skilled analysts with the competence to perform them. In 1998, for
instance, a Rand Corporation study that broke down military personnel and civilians along
these lines asserted that when all of these differing factors were taken into account, there was
no pay gap for all enlisted personnel except for senior enlisted members, where the gap was
about 3%, and that for officers the gap favoring civilians was about 7%, with some officer
subgroups making considerably more money than there civilian counterparts.
On April 11, 2002, in testimony before the Manpower and Personnel Subcommittee of
the Senate Armed Services Committee, General Accounting Office (GAO) analysts itemized
the components of the military benefit package – i.e., military retirement, health care,
Servicemember’s Group Life Insurance; base recreational facilities, and the like – and
compared them with the private sector. It found that the range of benefits available to
military personnel was generally comparable to, and in some cases superior to, benefits
available in the private sector. The GAO study did not appear to have made dollar-figure
comparisons or compared in military non-cash benefits – such as health care, commissaries
or exchanges, or annual leave – with similar benefits in the private sector, either by figuring
out their dollar worth or by itemizing their exact provisions in great detail.
If There Is a Pay Gap, Does It Necessarily Matter? Some have suggested that
the emphasis on the pay gap, whether real or imagined, or if real, how much, is unwarranted
and not a good guide to arriving at sound policy. They argue that the key issue is, or should
be, not comparability of military and civilian compensation, but the competitiveness of the
former. Absent a draft, the armed forces must compete in the labor market for new enlisted
and officer personnel. The career force by definition has always been a “volunteer force,”
and thus has always had to compete with civilian opportunities, real or perceived. Given
these facts of life, it is asked what difference it makes whether military pay is much lower,
the same, or higher than that of civilians? If the services are having recruiting difficulties,
then pay increases may be required, even if the existing “gap” favors the military.
Conversely, if military compensation is lower than equivalent civilian pay, and if the services
are doing well in recruiting and retaining sufficient numbers of qualified personnel, then
there may be no reason to raise military pay at all.
However, some believe that explicitly basing military compensation on “purely
economic” competitiveness with civilian pay could have undesirable consequences: for
instance, in a time of economic difficulty, the military might be receiving lower pay than
most civilians but still recruiting satisfactorily due to high unemployment. This situation,
last existed, to a degree, during the Great Depression of 1929-1941.
For further discussion of the “pay gap” issue, see Congressional Budget Office, What
Does the Military “Pay Gap” Mean? June 1999; and Association of the U.S. Army, Closing
the Pay Gap, Arlington, VA, October 2000.
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7. What Recent Changes Have Been Made in Active Duty Military
Pay and Benefits (Other Than the Annual Percentage Increase in
Basic Pay)?
Recent Major Changes in Active Duty Pay and Benefits. During the late
1990s, several structural changes in active duty military compensation took place, mostly to
the benefit of the individual. Three of the most significant are listed below.
Complete Restructuring of In-U.S. Housing Allowances. By1997, DOD and
Congress had completed combining several separate military housing allowances into one,
so that all military personnel in the United States not living in military housing have an area-
tailored housing allowance. This has greatly reduced out-of-pocket housing costs, as DOD
continues to budget progressive decreases in those costs as it has over the past several years.
Total Overhaul of Military Health Care Obtained from Civilian Sources.
The post-Cold War reduction in the size of the Armed Forces and the closure of many
military bases has greatly reduced the size of the military health care establishment and its
ability to deliver health care to eligible beneficiaries, particularly military retirees and their
families. This has led to large increases in military retiree health care costs and attempts to
restrain such costs through administrative and managerial reforms. These initiatives have
evolved into the new TRICARE program, which offers beneficiaries a wider range of health
care insurance costs and benefits. It is too soon to know if any of these programs will save
money or improve health care; as of now, the latter seems more likely than the former. For
further information, see CRS Issue Brief IB93103, Military Medical Care Services:
Questions and Answers, CRS Report 98-1006, Military Health Care: the Issue of
“Promised” Benefits; CRS Report 96-207, Military Medical Care and Medicare Subvention
Funding; and CRS Report 95-435, Military Retiree Health Care: Base Closures and
Realignments.
Repeal of the 1986 “Redux” Retirement Cuts. In late 1999, Congress repealed
the Military Retirement Reform Act of 1986 (P.L. 99-348; July 1, 1986), which had made
compulsory cuts in the future retired pay of those military personnel who first entered
military service on or after August 1, 1986. (These cuts have come to be called the “Redux”
system.) Redux had represented a success for those who had argued that the pre-1986
military retirement system, established in the late 1940s, cost too much, had lavish benefits,
and contributed to inefficient personnel management. Others had argued that the existing
system – particularly, its central feature of allowing career personnel with 20 years of service
to retire at any age – was essential to recruiting and maintaining sufficient high-quality career
personnel. The 1999 repeal of Redux was thus a success for those who felt that Redux was
a major factor in growing retention problems. (See CRS Issue Brief IB85159, Military
Retirement: Major Legislative Issues.)
8. Congressional Action This Year–FY2003 Legislation–on Military
Pay and Benefits (Other than the Across-the-Board Pay Raise)
FY2003 National Defense Authorization Act. It should be noted that, frequently,
the House and Senate Armed Services Committees, based on extensive consultation among
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staffs of the two committees as well as Members, divide the numerous smaller military
compensation issues between the two committees, if there is no apparent difference in
attitudes toward such measures. This cuts in half the number of smaller issues that each
committee is required to consider.
House. On May 9, 2002, the full House passed its version of the FY2003 National
Defense Authorization Act, following the May 3 approval of the Act by the House Armed
Services Committee (H.R. 4546, H.Rept. 107-436). The House bill contains provisions that
mandate the following actions or studies; these are listed because they have been the object
of some criticism or debate or apply to unusually large groups of people within the defense
community. The House bill would:
! Begin the implementation of concurrent receipt of military retired pay and
VA disability compensation in FY2003. For a full discussion of this
controversial issue, important to many hundreds of thousands of military
retirees, see CRS Issue Brief IB85159, Military Retirement: Major
Legislative Issues, and CRS Report 95-469, Military Retirement and
Veterans’ Compensation: Concurrent Receipt Issues.
! Continue DOD efforts to renovate old and build large amounts of new
barracks and military family housing. This is part of DOD’s stated intention
to remove all substandard housing in the inventory by FY2007.
! Criticize DOD attempts to cut budgets and personnel strengths of the
Defense Commissary Agency (DECA). The committee is concerned that
these cuts would damage an important benefit, with consequent negative
effects on career retention. It has asked the General Accounting Office
(GAO) to report on the DECA cuts by March 1, 2003; required DOD itself
to report to the committee on its actions in this regard; and required DOD
to “moderate the pace of these proposed personnel reductions....”and budget
cuts.
! Continue larger-than-housing cost increases by DOD and Congress in
housing allowances, to end the need of military personnel to spend more on
housing than their housing allowances provide by FY2005.
! Contain a variety of provisions to improve the efficiency of the military
health care system’s services, primarily, but not exclusively, for those 65
and older or those older retirees approaching 65.
! Require the General Accounting Office (GAO) to conduct a comprehensive
review of the adequacy of reserve component compensation and benefits, in
light of both the mobilization of almost 100,000 reservists for the war
against terrorism, and the increased role of the reserves in meeting current
operational requirements.
Senate. On June 27, 2002, the full Senate passed its version of the FY2003 defense
authorization, following the May 15, 2002, the Senate Armed Services Committee (SASC)
reported its version of the FY2003 defense authorization (S. 2514, S.Rept. 107-151). It
included, in addition to the across-the-board raise, a range of military pay and benefit
increases, of which some were similar or identical to those in the House bill. These measures
include:
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! As with the House bill, the partial implementation of concurrent receipt of
military retired pay and VA disability compensation in FY2003; the Senate
formula is different from that of the House, but the differences appear to be
comparatively minor.
! Authorization of “assignment incentive pay” of up to $1,500 monthly for
servicemembers who are serving in areas widely felt to be undesirable. This
appears to be driven primarily–but not exclusively–by widespread dislike
among servicemembers for duty in Korea.
! Increasing reserve enlistment bonuses for persons with prior military
service.
! Extension from 10 to 14 years the maximum period after leaving military
service that a reservist can wait before using Montgomery GI Bill
educational benefits.
! A range of health care management initiatives related primarily to military
retirees and their dependents, similar to the House bill.
! In language similar to that of the House Armed Services Committee report,
require a comprehensive review of reserve compensation, benefits, and
retirement, the review to be conducted by DOD, not by the GAO.
FOR ADDITIONAL READING
Army Times, Navy Times, Marine Times, and Air Force Times, weekly issues, dated Monday
of each week.
Congressional Budget Office. What Does the Military “Pay Gap” Mean? June 1999.
CRS Issue Brief IB85159. Military Retirement: Major Legislative Issues.
CRS Issue Brief IB93103. Military Medical Care Services: Questions and Answers.
CRS Report 95-469. Military Retirement and Veterans’ Compensation: Concurrent Receipt
Issues. April 7, 1995.
Department of Defense. Morale and Quality of Life Study Issues Document/Briefing Slides.
Located online at the DOD’s Web site at
[http://www.defenselink.mil/news/Jun2001/d20010621qoli.pdf].
––– Morale and Quality of Life Study Overview. Located online on the DOD’s Web site at
[http://www.defenselink.mil/news/Jun2001/d20010621qolo.pdf].
Uniformed Services Almanac. 2002 Edition. Falls Church, VA, Uniformed Services
Almanac, Inc., January 2001.
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