Order Code IB10089
Issue Brief for Congress
Received through the CRS Web
Military Pay and Benefits:
Key Questions and Answers
Updated March 19, 2003
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,
the U.S. Military Response to Them, and a Possible War with Iraq 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?
Annual Percentage Increases in Military Basic Pay
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?
2003 (FY2004)
2002 (FY2003)
2001 (FY2002)
2000 (FY2001)
1999 (FY2000)
1998 (FY1999)
1997 (FY1998)
1996 (FY1997)
1995 (FY1996)
1994 (FY1995)
1993 (FY1994)
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”?
Measuring and Confirming a “Gap”
Estimates of a Military-Civilian Pay Gap
If There Is a Pay Gap, Does It Necessarily Matter?
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
8. Congressional Action This Year–FY2004 Legislation–on Military Pay and Benefits
(Other than the Across-the-Board Pay Raise)
Military Tax Legislation
FOR ADDITIONAL READING

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Military Pay and Benefits: Key Questions and Answers
SUMMARY
Congress is most likely to be concerned
and retention purposes. Of particular interest
about military pay and benefits when the
is the balance between across-the-board pay
military services are having problems with
raises and ones targeted by grade, years of
recruiting or retention, or military personnel
service, and occupational skill; and between
are reportedly paid at a level that forces them
cash compensation on the one hand and im-
and their families to live at a much lower
provements in benefits such as housing, health
standard of living than comparable civilians.
care, and installation services on the other.
In the late1990s, these concerns again
The across-the-board increases in mili-
came to the attention of Congress. Some of
tary pay discussed each year relate to military
the factors believed to be responsible for
basic pay, which is the one element of mili-
recruiting and retention problems were the end
tary compensation that all military personnel
of the Cold War, private-sector job opportuni-
in the same pay grade and with the same
ties due to the 1990s boom, increasing desire
number of years of service receive. A key
for and availability of a college education,
issue in determining the annual percentage
rising living standards that put military hous-
increase is whether a “pay gap” exists be-
ing and lifestyles at a disadvantage, and
tween military and civilian pay that favors
greater sensitivity among personnel to family
civilians. Comparing the two is difficult,
separation and frequent overseas rotations.
because aspects of each cannot readily be
compared to the other.
In responding, Congress was mindful of
the decreased recruit quality of the late 1970s,
Since the early 1990s, in addition to each
mostly because of low pay. Consequently,
year’s across-the-board raise, most changes in
Congress responded with larger across-the-
benefits have favored individual members.
board pay raises, increased special pays and
These include changes in the cash allowance
bonuses, more recruiting resources, and repeal
received by personnel not living in military
of planned military retired pay reductions for
housing; a drastic overhaul of military health
future retirees. In the midst of these efforts,
care; and repeal of military retired pay cuts
the terrorist attacks of September 11, 2001,
first enacted in 1986.
took place, providing a sense of national unity
and military purpose that a direct attack on the
The FY2003 National Defense Authori-
homeland can produce. Recruiting has im-
zation Act authorized a military pay raise,
proved substantially, and although career
effective January 1, 2003, of at least 4.1%,
retention has been less responsive, it, too,
and as much as 6.5% for some personnel.
appears to have turned a corner. It is, how-
There were rumors that the Office of Manage-
ever, almost impossible to disaggregate the
ment and Budget (OMB) would seek to re-
effects of each of these factors, especially the
strict the FY2004 increase to 2% for
qualitative ones, and yet another “wild card”–
budgetary reasons, but these were apparently
the effects of an anticipated or actual war with
“nipped in the bud” by President Bush him-
Iraq – has, in early 2003, entered the picture.
self, who approved DOD’s proposal of an
FY2004 military pay raise of an average 4.1%,
Still at issue are what additional pay and
ranging between 2.0% and 6.5%.
benefit increases are best suited for recruiting
Congressional Research Service ˜ The Library of Congress

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MOST RECENT DEVELOPMENTS
On March 6, 2003, the House Republican leadership removed from floor consideration
the proposed Armed Forces Tax Fairness Act, because of disagreement within the House
over various tax measures unrelated to military compensation that had been added to the bill.
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.
The last time Congress dealt with inadequate active duty pay levels was in the 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 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.
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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: (1) a public impression that the end of the Cold War, meant
that military service was no longer interesting, relevant, or even available as a career option;
(2) the post-Cold War drawdown in active duty military manpower by 40% which greatly
reduced real and perceived enlistment and career retention opportunities; (3) the 1990s
economic expansion, which led to the explosive growth of actual and perceived civilian
career options; (4) a rise in civilian consumer living standards against which military families
measure their own economic success or failure; (5) concerns over increased family separation
due to more operations and training away from home, whether “home” was in the United
States or in foreign countries; and (6) a decreased propensity for military service among
young people for other reasons, such as anti-military parents and educators; skepticism about
new 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, the U.S. Military Response to Them, and a
Possible War with Iraq 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, began to improve in FY2000 and have continued
their upward trend in FY2001-FY2002. 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 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.
The events of September 11 contributed to raising both actual and perceived
unemployment--attitudes always good for recruiting, if bad for the country as a whole. Such
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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.
The effects of a possible war with Iraq on military pay and benefits can be expected to
have broadly similar effects as the effects of the war on terrorism have actually had over the
past year–Congress is always attentive to the personal and financial status and problems of
military personnel in time of war. The length of the period preceding an actual war, and the
length and progress of the conflict once joined, could have wildly varying effects on
recruiting and retention. During Operations Desert Shield (the 7-month period from August
2, 1990, the Iraqi conquest of Kuwait, and the beginning of the war against Iraq that liberated
Kuwait), and Desert Storm (the actual 42-day Persian Gulf War, January 17-February 28,
1991), enlistments dipped in the first few months of Desert Shield, then rose to roughly
prewar levels–and shot up in the year or two following the victory in the war. Similar
predictions for the potential conflict now being debated can thus be seen as very hard to do.
All of these factors may operate at the same time and in a crude sense may cancel each
other out. A 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 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. 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 include special pays and bonuses in retired
pay calculations, precisely to provide an additional incentive for the recipients to stay in
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
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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.
Recruiting and retention problems are not necessarily solved only by increasing military
pay. Many components of the military compensation system that are important to recruiting
and retention efforts, especially the latter, do not involve cash pay. These include health
care; housing; permanent change of station (PCS) moving costs and policies; exchanges,
commissaries, and other retail facilities; and 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
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.
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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
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
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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 legislated a
particular percentage increase in military pay 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.
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
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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.
2003 (FY2004). Statutory formula: 3.7%. Administration request: The FY2004
defense budget request, released on February 3, 2003, proposed an FY2004 military pay raise
averaging 4.1%. Depending on rank and years of service, military pay would be increased
by a minimum of 2.0% and a maximum of 6.5%. Personnel in pay grade E-1 (new recruits)
would get the minimum 2.0% raise, and enlisted members in pay grade E-2, and newly-
commissioned junior officers in pay grade O-1, would get 3.2%. Most officers would get
3.7%, and the highest percentage raises, up to the 6.25% figure, would be given to career
enlisted personnel in pay grades E-5 through E-9.
Press accounts indicate that in late December 2002, OMB Director Mitchell Daniels
proposed that the FY2004 raise, to be effective January 1, 2004, be limited to 2% rather than
the 3.7% that would result from existing statutes. This would have saved approximately
$680 million in FY2004. It would also have reversed the policy that Congress has had in
effect since 1999 (FY2000), to keep military compensation competitive and comparable to
the private sector (see above under “Temporary Suspension of Permanent Law to Give the
Military Higher Pay Raises”). Apparently, however, DOD appealed the OMB proposal to
the President, who personally approved the DOD proposal.
2002 (FY2003). Statutory formula: 4.1%. Administration request: Minimum 4.1%;
average 4.8%; for some mid-level and senior noncommissioned officers, warrant officers,
and mid-level commissioned officers, between 5.0% and 6.5%. Final increase: identical to
the Administration request, embodied, as usual, in the FY2003 National Defense
Authorization Act (P.L. 107-314, December 2, 2002; 116 Stat. 2458). The House and Senate
had also approved the Administration request.
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
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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,
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).
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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%.
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
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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.
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
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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
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.
In April 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.
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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.
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
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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–FY2004 Legislation–on Military
Pay and Benefits (Other than the Across-the-Board Pay Raise)
The Administration’s FY2004 defense budget request indicates that, in addition to the
annual pay raise, two major efforts in improving military benefits will continue to be pursued
in 2003:
! Continuing to reduce the amount of money that military personnel have to
pay for housing costs out-of-pocket–i.e., that are not covered by military
housing allowances. These costs have been paid down, in percentage terms,
from an approximate 15% in the late 1990s to 7.5% during FY2003; the
Administration proposes funding a reduction to 3.5% in FY2004.
! Eliminating substandard defense family housing by FY2007, with some
exceptions in the Air Force (which generally has the best housing anyway).
Military Tax Legislation. Some legislation has already been introduced in the 108th
Congress containing some of the features that were included in various versions of the
Foreign and Armed Services Tax Fairness Act of 2002 (H.R. 5063 and H.R. 5557/S. 2816),
which just failed of enactment in the closing days of the 107th Congress. One version or
another of this bill included the following: (1) exemption of the full $6,000 of the military
death gratuity from income tax, rather than just $3,000 of it; (2) authorization of military and
foreign service personnel to not count periods spent outside the United States in claiming the
$250,000 (or $500,000 per couple) capital gains tax exclusion from the sale of real estate;
currently, such time spent abroad must be used in determining if the people involved have
lived in the residence in question for at least 2 of the preceding 5 years; (3) exclusion from
taxation payments made to military home sellers to compensate them for the lowered price
of houses in an area where a base has been closed; (4) inclusion of contingency operations
in the extended period for which a military member can postpone filing tax returns; currently,
the member can postpone the filing only if he or she is in a combat zone; (5) liberalization
of the ability of reservists to claim various travel and lodging expenses as unreimbursed
business expenses on their tax returns; and (6) clarification of the treatment of certain child
care costs for exclusion from taxable income. Bills containing some of these provisions
include H.R. 878 and H.R. 1307; and S. 19, S. 289, and S. 351.
House Action. After initially reaching the floor of the House on March 5, later on
that day the House leadership removed the bill from the floor. According to news reports,
this was due to controversy among some Members regarding various non-military personnel-
related provisions that had been added to the bill during its consideration in the Ways and
Means Committee.
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FOR ADDITIONAL READING
Army Times, Navy Times, Marine Times, 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
and Study Overview. Located online at the DOD’s Web site at
[http://www.defenselink.mil/news/Jun2001/d20010621qoli.pdf].
Uniformed Services Almanac. 2003 Edition. Falls Church, VA, Uniformed Services
Almanac, Inc., 2003.
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