Order Code IB10089
CRS Issue Brief for Congress
Received through the CRS Web
Military Pay and Benefits:
Key Questions and Answers
Updated October 1, 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 the Iraq War That Began on March 19,
Have on Military 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. Congressional Action in 2003 on Military Pay and Benefits (Other than the Across-
the-Board Pay Raise)
FY2004 National Defense Authorization Act (NDAA)
Family Separation Allowance (FSA) and Hostile Fire/Imminent Danger Pay
(HF/IDP)
Deduction of Subsistence Costs from the Pay of Hospitalized Military Personnel
Military Tax Legislation
FOR ADDITIONAL READING

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Military Pay and Benefits: Key Questions and Answers
SUMMARY
In the late1990s, the military services
basic pay, which is the one element of mili-
were facing considerable recruiting and career
tary compensation that all military personnel
retention problems.
Reasons for these in-
in the same pay grade and with the same
cluded the end of the Cold War, private-sector
number of years of service receive. However,
job
opportunities
in
the
1990s
boom,
there are numerous other elements in the total
increasing desire for and availability of a
military compensation “package.” These other
college education, rising living standards that
elements
are
important
in
determining
put military housing and lifestyles at a disad-
whether a “pay gap” exists between military
vantage, and greater sensitivity among person-
and civilian pay that favors civilians, because
nel to frequent family separation and overseas
the numerous different elements of military
rotations.
pay makes it difficult to compare to civilian
salaries and other benefits.
In responding, Congress was mindful of
how low pay had contributed to decreased
Since the early 1990s, in addition to each
recruit quality in the late 1970s. It authorized
year’s across-the-board raise, most changes in
larger pay raises, increased special pays and
benefits have favored individual members.
bonuses, more recruiting resources, and repeal
These include changes in the cash allowance
of planned military retired pay reductions for
received by personnel not living in military
future retirees. In the midst of these efforts,
housing; a drastic overhaul of military health
the terrorist attacks of September 11, 2001,
care; and repeal of military retired pay cuts
took place, providing a sense of national unity
first enacted in 1986.
and military purpose. Recruiting has since
improved substantially. Career retention is
Military personnel last received an
difficult to measure, due to (1) the suspended
across-the-board pay raise on January 1, 2003;
separation and retirement of many personnel
all members received at least a 4.1% increase,
since 09/11/01, (2) the Iraq war, and (3) and
and some got as much as 6.5%. For January
the virtual impossibility of disaggregating the
1, 2004, DOD has proposed a military pay
effects of each of these factors.
raise averaging 4.1%, ranging between 2.0%
and 6.5%; the House version of the FY2004
Debate continues over what kinds of pay
National Defense Authorization Act (NDAA)
and benefit increases are best for improving
approved the DOD pay raise proposal; the
recruiting and retention. Of particular interest
Senate version made some comparatively
is the balance between across-the-board pay
minor changes in the DOD plan. A variety of
raises on the one hand, and ones targeted by
other increases in various special pays and
grade, years of service, and occupational skill,
benefits are making their way through
on the other; and between cash compensation
Congress. Several relate to troops deployed to
on the one hand and improvements in benefits
Iraq and Afghanistan and/or wounded and
such as housing, health care, and installation
hospitalized, and their families— two aspects
services on the other.
of basic allowance for subsistence (cash al-
lowances for food); and one regarding “com-
The across-the-board increases in mili-
bat pay” and its ramifications.
tary pay discussed each year relate to military
Congressional Research Service
˜ The Library of Congress

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MOST RECENT DEVELOPMENTS
On September 24, 2003, the conference version of the FY2004 DOD Appropriation Act
was reported (H.Rept. 108-283); it will allow DOD, during FY2004, to waive collection of
subsistence (food) costs from the cash basic allowance for subsistence (BAS) paid to troops
in military hospitalized; existing law requires such a collection.
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 the Iraq
War That Began on March 19, Have on Military Benefits?
It is not yet clear what, if any, long-term effects the ongoing war against terrorism and
the more recent Iraq war will have on military pay and benefits. In the short term, recruiting
and career retention, especially the former, began to improve in FY2000, up to a year before
09/11/01, and have continued to improve during FY2001-FY2003 during both the Global
War on Terrorism and the Iraq war. However, it is difficult to disaggregate the precise
effects of recruiting and retention initiatives from other war-related policies. For instance,
the invoking, after 09/11/01, 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, makes it difficult to measure career
retention. Furthermore, the significance of the sense of national unity and military purpose
that a direct attack on the American homeland has produced is almost impossible to quantify,
yet operational military commanders at all echelons cite this unity of purpose when
discussing the environment and outlook in which they operate today. The effects of the
decisive and short conventional war with Iraq has probably reinforced these broadly similar
effects. However, the ongoing low-intensity terrorist/guerrilla attacks on U.S. and coalition
occupation forces in Iraq could have negative effects, if they seem to drag on without
apparent end for several months or more, although even here resolute political leadership
could mitigate such a potential “souring” of views in the ranks.
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
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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, 2001, contributed to raising both actual and perceived
unemployment— attitudes 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.
In short, 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.
Support for an Administration taking decisive military action, and one
apparently strongly committed to its ends in Iraq, could falter if the continued deployment
was not producing military success, by whatever index of military success the public, not
necessarily the armed forces, feels is the most relevant.
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
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
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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.
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
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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 percentage
pay increase that would result from operation of the permanent statutory GS pay raise
formula. It need not, therefore, be identical to the actual percentage increase in GS pay, if
Congress acts to either (1) authorize a GS pay increase different from that which would
result from operation of the permanent formula for a particular fiscal year and/or (2)
authorize a different military pay increase that differs from operation of the permanent
formula.
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
guaranteed only a pay raise of 4.5%, costing a total of $4.5 billion. The $500 million thus
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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).]
Congress Usually Passes a Military Pay Raise Anyway, 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, and is in the process of doing so in 2003. The percentage increase in military pay was
usually identical to that granted GS civilians during the period 1982-1999 (the exceptions
were in 1985 and 1994, when Congress provided larger increases in military pay). However,
beginning in 2000, Congress has provided larger increases in military pay each year and may
well do so in 2003. Even when the percentage increase has been identical for both military
and civilian pay, 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 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 occasional proposals
to survey the housing costs on which BAH is based more frequently than once a year, due
to rapidly rising housing costs in many areas of the United States. 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.
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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. House action. The House version of the
FY2004 NDAA , passed May 22, is identical to the Administration proposal. Senate action.
The Senate version, also passed May 22, would provide military personnel with an average
4.15% pay raise but, unlike the House committee version, would guarantee all personnel at
least a 3.7% increase. The Senate version would also modify permanent law to require, after
FY2006, that the annual military pay raise be equal to the percentage annual increase in the
Employment Cost Index (ECI; see above, under #4, for a description of the ECI), repealing
existing permanent law that has the effect of mandating a pay raise equal to the ECI minus
0.5%. Existing temporary law, enacted in 1999 in the FY2000 NDAA, that requires an
increase equal to the ECI plus 0.5% in FY2001-FY2006 would not be changed (see below
under “Suspension of Statutory Formula during FY2001-FY2006).
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
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.
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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).
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%.
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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 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 includes numerous separate components, whose receiving population
and taxability varies widely. Which of these, if any, should be included in a military-civilian
pay comparison? Furthermore, total military compensation includes a wide range of non-
monetary benefits: health care, retail stores, and recreational facilities. 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 to establish a solid comparison between military
ranks and pay grades on the one hand, and civilian jobs on the other. The range of
knowledge, supervision, and 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. 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 may lead to different conclusions than comparing the annual
increases in pay for each position. The percentage increase in pay over different time periods
is more often than not very different. Different indexes with different components can be
used to determine compensation changes.
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.
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. 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 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 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
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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.
7. Congressional Action in 2003 on Military Pay and Benefits (Other
than the Across-the-Board Pay Raise)
FY2004 National Defense Authorization Act (NDAA). On May 22, 2003, the
House and Senate approved their versions of the FY2004 National Defense Authorization
Act. Both approved various special pays and bonuses and other elements of military
compensation and benefits, some of which had been introduced as separate bills earlier;
many are related to the Iraq war and its aftermath. These include the following.
House and Senate Versions, FY2004 NDAA.
! A special pay of up to $1,000 monthly for servicemembers making very
“long or frequent” deployments.
! Increasing the amount of unused leave servicemembers can carry over from
one year to the next from 30 to 120 days.
! A bonus of up to $4,000 to enlisted personnel who agree to serve for at least
two years in an occupational specialty critically short of members.
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House Version, FY2004 NDAA.
! Authorizing reserve retirees under age 60 (i.e., not yet eligible for reserve
retired pay), Selected Reserve personnel, and their dependents to use
commissaries on the same unlimited basis as active duty military personnel
and their dependents.
Senate Version, FY2004 NDAA.
! Payment of $100 per month to all personnel stationed in South Korea.
! Increasing the death gratuity payable immediately to the survivors of
military personnel who die on active duty from $6,000 to $12,000.
! Continuing payment of reserve reenlistment bonuses to reservists who are
mobilized.
! Payment of a military Survivor Benefit Plan annuity to the surviving spouse
of a reservist not yet eligible for retirement who died during reserve inactive
duty training (colloquially often known as “weekend drill).
Family Separation Allowance (FSA) and Hostile Fire/Imminent Danger Pay
(HF/IDP). Over the past two months, controversy has surfaced over the amounts of two
types of military pay: Hostile Fire/Imminent Danger Pay (HF/IDP; often known colloquially
as “combat pay”), and Family Separation Allowance (FSA). The monthly rates for these
special pays were temporarily increased from $150 to $225 (HF/IDP) and $100 to $250
(FSA), during FY2003, by the FY2003 Emergency Wartime Supplemental Appropriation
Act. They would, therefore, have reverted to the lower amounts on October 1, 2003, when
FY2004 began, if the continuing resolution for FY2004, P.L. 108-84, had not been enacted
on September 30. If no further action is taken by Congress, the rates will revert to the lower
amounts on November 1, 2003. Both the House and Senate versions of the FY2004 National
Defense Authorization Act (NDAA) would permanently raise the rates to the higher amount,
although the House provision is targeted more narrowly in geographic terms.
DOD opposes making the higher HF/IDP and FSA rates permanent. It has proposed
allowing the rates to revert back to the lower amounts currently embodied in permanent law,
and replacing the income lost with higher rates of Hardship Duty Pay (HDP), but only for
those personnel serving in a combat zone, or in direct support of operations in a combat zone.
All other military personnel eligible for HF/IDP or FSA would receive the lower rates for
these forms of compensation, without any corresponding increase in HDP. (These two
paragraphs on HF/IDP and FSA are taken, with some minor modifications, from the
summary of a more detailed CRS analysis of the issue. See CRS Report RS21632, Military
Pay: Controversy over Hostile Fire/Imminent Danger Pay and Family Separation Allowance
Rates, by Lawrence Kapp.)
Deduction of Subsistence Costs from the Pay of Hospitalized Military
Personnel. In mid-September 2003, an issue arose regarding the deduction of meal costs
from the pay of soldiers hospitalized after being wounded in Iraq or Afghanistan (although
the issue is relevant to all hospitalized military personnel). By law (10 USC 1075), when
military personnel are hospitalized, they are required to have the costs of their meals
deducted from their pay. The law requires that these deductions be identical to the amount
of money they receive as a Basic Allowance for Subsistence (BAS— a cash food allowance).
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In effect, therefore, the deduction for food is made from that amount of money received for
food in the first place, and if the deduction was not made, affected personnel would be
receiving both their meals and the amount of money they receive to pay for meals. Public
outcry over these deductions has resulted in a provision being placed in the conference
version of the FY2004 DOD Appropriation Act (Sec. 8146, H.R. 2648; reported September
24, 2003, H.Rept. 108-283), which would allow DOD to waive the deductions during
FY2004.
Military Tax Legislation. A wide range of military-related tax provisions have been
incuded in several bills proposed, and some passed, by both House and Senate. Apparent
time constraints and aspects of the legislative vehicles used which had no relationship to the
military provisions have prevented agreement by both chambers on a bill.
These provisions include the following six matters of interest to substantial numbers of
military personnel: (1) exemption of the full military death gratuity from income tax, rather
than just $3,000 of it; (2) authorization of military 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.
Some of the bills have also included very specialized tax provisions relating to veterans’
organizations, astronauts, and service academy cadets and midshipmen.
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.
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; National Guard Almanac, Reserve Forces Almanac, Retired
Military Almanac. 2003 Editions. Falls Church, VA, Uniformed Services Almanac,
Inc., 2003.
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CRS Products
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.
CRS Issue Brief IB85159. Military Retirement: Major Legislative Issues.
CRS Report RL31334. Operations Enduring Freedom and Noble Eagle: Questions and
Answers about U.S. Military Personnel, Compensation, and Force Structure.
CRS Report RL30802. Reserve Component Personnel Issues: Questions and Answers.
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