Order Code IB10089
CRS Issue Brief for Congress
Received through the CRS Web
Military Pay and Benefits:
Key Questions and Answers
Updated October 29, 2004
Robert L. Goldich
Foreign Affairs, Defense, and Trade Division
Congressional Research Service ˜ The Library of Congress
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 in March 2003,
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?
Definitions
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?
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 Benefits Are Specifically Available For Military Personnel Participating in
Operation Iraqi Freedom (OIF) and Operation Enduring Freedom (OEF — Service
in Afghanistan)?
Hostile Fire/Imminent Danger Pay
Hardship Duty Pay
Family Separation Allowance
Per Diem
Savings Deposit Program
Combat Zone Tax Exclusion
Rest and Recreation (R&R) for Personnel In OIF/OEF
Additional Benefits for Some Personnel in OIF/OEF
8. What Additional Military Benefits is Congress Considering in 2004?
FOR ADDITIONAL READING
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Military Pay and Benefits: Key Questions and Answers
SUMMARY
In the late1990s, the military services
Basic Pay. The across-the-board in-
were facing considerable recruiting and career
creases in military pay discussed each year
retention problems. Reasons for these in-
relate to military basic pay, which is the one
cluded the end of the Cold War, private-sector
element of military compensation that all
job opportunities in the 1990s boom,
military personnel in the same pay grade and
increasing desire for and availability of a
with the same number of years of service
college education, rising living standards that
receive. However, numerous other elements
put military housing and lifestyles at a disad-
are in the total military compensation “pack-
vantage, and greater sensitivity among person-
age.” These other elements are important in
nel to frequent family separation and overseas
determining whether a “pay gap” exists be-
rotations.
tween military and civilian pay that favors
civilians, because the numerous different
In responding, Congress was mindful of
elements of military pay makes it difficult to
how low pay had contributed to decreased
compare to civilian salaries and other benefits.
recruit quality in the late 1970s. It authorized
larger pay raises, increased special pays and
Since the early 1990s, in addition to each
bonuses, more recruiting resources, and repeal
year’s across-the-board raise, most changes in
of planned military retired pay reductions for
benefits have favored individual members.
future retirees. In the midst of these efforts,
These include changes in the cash allowance
the terrorist attacks of September 11, 2001,
received by personnel not living in military
took place, providing a sense of national unity
housing; a drastic overhaul of military health
and military purpose. Recruiting has since
care; and repeal of military retired pay cuts
improved substantially. Career retention is
first enacted in 1986.
difficult to measure, due to (1) the suspended
separation and retirement of many personnel
2004 Raise. The most recent such raise
since 09/11/01, (2) the Iraq war, and (3) and
was effective January 1, 2004, with an average
the virtual impossibility of disaggregating the
pay raise of 4.15%, a minimum of 3.7%, and
effects of each of these factors.
a maximum of 6.25%, depending on pay grade
and years of service.
Debate continues over what kinds of pay
and benefit increases are best for improving
2005 Raise. The Administration’s
recruiting and retention. Of particular interest
FY2005 defense budget requests a 3.5%
is the balance between across-the-board pay
across-the-board pay raise for military person-
raises on the one hand, and ones targeted by
nel, effective January 1, 2005. The conference
grade, years of service, and occupational skill,
version of the FY2005 National Defense
on the other; and between cash compensation
Authorization Act (H.R. 4200/S. 2400) in-
on the one hand and improvements in benefits
cludes the Administration request.
such as housing, health care, and installation
services on the other.
Congressional Research Service ˜ The Library of Congress
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MOST RECENT DEVELOPMENTS
The conference version of the FY2005 National Defense Authorization Act (NDAA),
reported October 8, 2004, includes the Administration request for a 3.5% across-the-board
military pay raise in FY2005, effective January 1, 2005.
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% for officers and between 10% and 17% for enlisted personnel) 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 in March 2003, 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. There are considerable indications that the ongoing low-intensity terrorist/guerrilla
war between U.S., other coalition, and Iraqi security forces on the one hand, and a range of
former regime supporters on the other, is starting to have some negative effects on recruiting
and retention, particularly in the Army National Guard. However, some have argued that the
most surprising aspect of these tentative recruiting and retention problems is that they have
taken so long to even begin to show up and that they are far less than most pessimists had
suggested would be the case.
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
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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, 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
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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 can be one of two similar
rates, based on the type 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.1
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 six 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.
1 For a detailed discussion of the costs and value of monetary and non-monetary benefits, see
Military Compensation: Balancing Cash and Noncash Benefits. Economic and Budget Issue Brief.
Congressional Budget Office, January 16, 2004.
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The actual percentage increase in GS pay is not the percentage increase in the ECI over
the time frame described. The applicable statute [5 USC 5303(a)]provides that the overall
increase in federal GS pay will be 0.5% less than the percentage increase in the ECI. The
money thus saved is frequently cited as being available to provide larger pay raises to federal
civilians in high-cost-of-living metropolitan areas within the United States, although there
is no statutory requirement than the “saved” money be used for this purpose. For example,
if there is a 5% increase in the ECI from the previous year, and the cost of raising all federal
GS pay by 5% would be $5 billion yearly, federal GS civil servants would actually be
guaranteed only a pay raise of 4.5%, costing a total of $4.5 billion. The $500 million thus
saved could, if the executive branch and/or Congress so desired, be applied to pay for raises
higher than 4.5% in high-cost-of-living areas. In this example, military personnel could thus
get a 4.5% pay raise. This formula led to the actual pay raises received in 1993 (FY1994),
1994 (FY1995), 1995 (FY1996), 1997 (FY1998), and 1999 (FY2000). [The statute does
allow the overall percentage increase to be allocated among the different pay grade and years-
of-service categories, subject to various limitations, rather than giving all personnel identical
percentage increases. This was in fact done in 2000. See 37 USC 1009(d).]
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. 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. 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 there are two types of enlisted BAS: “when authorized to mess separately”
and “when rations in-kind are not available”; the former is the one received by the
overwhelming majority of enlisted personnel. 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, there have been 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.
2004 (FY2005). Statutory formula: 3.5%.
Administration request: 3.5%. Unlike the years 1999-2003 (FY2000-FY2004), the
Administration request is for a single percentage increase across the board, rather than a
“targeted” increase based on which particular pay grades and years-of-service cohorts need
more pay to improve career retention.
Congressional action: FY2005 congressional budget resolution. Both the House and
the Senate versions of the FY2005 congressional budget resolution, and various actions taken
by both houses to define their budgetary positions in the absence of agreement on a final
budget resolution, assumed the adoption of the Administration request of 3.5%. The debate
over “pay parity” between the FY2005 military and federal civil service pay increases
involves the percentage amount of the civilian pay raise; it does not involve the military pay
raise proposal at all.
Congressional action: FY2005 National Defense Authorization Act (NDAA). The
House Armed Services Committee and House-passed versions of the NDAA (H.R. 4200;
reported May 13, 2005; H.Rept. 108-491; passed House May 20, Roll Call No. 206, 259-
162) includes the Administration-proposed pay raise of 3.5% across the board, effective
January 1, 2005. The Senate Armed Services Committee and Senate-passed version of the
NDAA does also (S. 2400, reported May 11, 2004; S.Rept. 108-260; passed Senate June 23,
Vote No. 146, 97-0). On October 8, the conference version of the NDAA was reported,
endorsing the same 3.5% increase.
2003 (FY2004). Statutory formula: 3.7%. Administration request: Average 4.1%;
minimum 2.0%; maximum of 6.5%. Final version. FY2004 NDAA (Sec. 601, P.L. 108-
136, November 24, 2003; 117 Stat. 1392). Average 4.15%: floor 3.7%; maximum 6.25%
for some senior NCOs. Also included language requiring that after FY2006, the annual
military pay raise would be equal to the annual percentage rise in the Employment Cost
Index (see above, #4, for a description of the ECI), thus repealing previous law that had the
effect of mandating a pay raise equal to the ECI minus 0.5%. Existing temporary law,
enacted in 1999 in the FY2000 NDAA, which requires an increase equal to the ECI plus
0.5% during 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
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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; the average increase for FY2002 was 6.9%.
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 remain 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 two-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 six-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. This latter provision is still in effect as of FY2004. Naturally, any congressional
action following the enactment of this legislation supersedes it.
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,
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1998; 112 Stat. 1920 at 2036) approved the House alternative, which resulted in a 3.6%
military increase, as GS civilians also received 3.6%.
1997 (FY1998). Statutory formula: 2.8%. Administration request: 2.8%. Final
increase: FY1998 National Defense Authorization Act (Section 601, P.L. 105-85, November
18, 1997; 111 Stat. 1629 at 1771): 2.8%.
1996 (FY1997). Statutory formula: 2.3%. Administration request: 3.0%. Final
increase: The House and Senate both approved the higher Administration request of 3.0%,
and it was therefore included in the FY1997 National Defense Authorization Act (Section
601, P.L. 104-201, September 23, 1996; 110 Stat. 2422 at 2539).
1995 (FY1996). Statutory formula: 2.4%. Administration request: 2.4%. Final
increase: Congress also approved 2.4% in the FY1996 National Defense Authorization Act
(Section 601, P.L. 104-106, February 10, 1996; 110 Stat. 186 at 356).
1994 (FY1995). Statutory formula: 2.6%. Administration request: 1.6%; one percent
less than the statutory formula. Final increase: The FY1995 National Defense Authorization
Act (Section 601, P.L. 103-337, October 5, 1994; 108 Stat. 2663 at 2779) authorized the
statutory formula figure of 2.6%.
1993 (FY1994). Statutory formula: 2.2%. Administration request: No increase;
military (and civil service) pay would have been frozen in FY1994. The Administration also
proposed limiting future civil service — and hence active duty military — pay raises to one
percentage point less than that provided by the existing statutory formula. None of these
proposals was adopted. Final increase: The FY1994 National Defense Authorization Act
(Section 601, P.L. 103-160, November 30, 1993, 107 Stat. 1547 at 1677) authorized 2.2%.
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
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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.
As noted above, the debate over “pay parity” between the FY2005 military and federal
civil service pay increases involves the percentage amount of the civilian pay raise. It does
not involve the military pay raise proposal at all; rather, the issue has been whether the civil
service should get a percentage raise identical to that of the military or, as the Administration
has requested, a raise of 1.5% on January 1, 2005, compared to the requested 3.5% for the
military.
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.
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
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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 2002 General Accounting Office (GAO) analysts itemized the components of the
military benefit package — such as 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.2
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
2 Military Personnel: Active Duty Benefits Reflect Changing Demographics, but Opportunities Exist
to Improve. Report no. GAO-02-935. Washington, U.S. General Accounting Office [now
Government Accountability Office], September 18, 2002.
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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. What Benefits Are Specifically Available For Military Personnel
Participating in Operation Iraqi Freedom (OIF) and Operation
Enduring Freedom (OEF — Service in Afghanistan)?3
Hostile Fire/Imminent Danger Pay. Many military personnel participating in OEF
and OIF may be eligible for Hostile Fire or Imminent Danger Pay (HF/IDP). HF/IDP is
authorized by 37 U.S.C. 310, which provides a special pay for “duty subject to hostile fire
or imminent danger.” While DOD regulations distinguish between Hostile Fire Pay and
Imminent Danger Pay, both are derived from the same statute, and an individual can only
collect Hostile Fire Pay or Imminent Danger Pay, not both simultaneously. The purpose of
this pay is to compensate servicemembers for physical danger. Iraq, Afghanistan, Kuwait,
Saudi Arabia, and many other nearby countries have been declared imminent danger zones.
Military personnel serving in such designated areas are eligible for HF/IDP. To be eligible
for this pay in a given month, a servicemember must have served some time in one of the
designated zones, even if only a day or less. The authorizing statute for HF/IDP sets the rate
at $150 per month. However, the FY2004 National Defense Authorization Act (NDAA)
(Sec. 619, P.L. 108-136, November 24, 2003; 117 Stat. 1392) temporarily increased this rate
to $225 through December 31, 2004. The conference version of the FY2005 NDAA would
make this increase permanent. (For some detailed background on HF/IDP, see Military Pay:
Controversy Over Hostile Fire/Imminent Danger Pay and Family Separation Allowance
Rates, CRS Report RS21362, Updated October 8, 2003.)
Hardship Duty Pay. Military personnel serving in Iraq, Afghanistan, parts of the
Persian Gulf region, and certain nearby areas are also eligible for Hardship Duty Pay. HDP
is authorized by 37 U.S.C. 305. It is compensation for the exceptional demands of certain
duty, including unusually demanding mission assignments or service in areas with extreme
climates or austere facilities. The maximum amount of HDP permitted by the statute is $300
per month. The current rate of HDP for Iraq and Afghanistan is $100 per month.
3 Much of this material is taken from Lawrence Kapp, Operations Noble Eagle, Enduring Freedom,
and Iraqi Freedom: Questions and Answers about U.S. Military Personnel, Compensation, and
Force Structure. CRS Report RL31334, Updated September 16, 2004.
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Family Separation Allowance. Military personnel participating in OEF and OIF
may also be eligible for Family Separation Allowance (FSA). FSA is authorized by 37
U.S.C. 427, which provides a special pay for those servicemembers with dependents who are
separated from their families for more than 30 days. The purpose of this pay is to “partially
reimburse, on average, members of the uniformed services involuntarily separated from their
dependents for the reasonable amount of extra expenses that result from such separation....”
To be eligible for this allowance, U.S. military personnel must be separated from their
dependents for 30 continuous days or more; but once the 30-day threshold has been reached,
the allowance is applied retroactively to the first day of separation. The authorizing statute
for FSA sets the rate at $100 per month. However, Section 606 of the FY2004 NDAA
temporarily increased the FSA rate to $250 per month through December 31, 2004. The
conference version of the FY2005 NDAA would make this increase permanent.
Per Diem. Military personnel serving in OIF/OEF are also entitled to per diem
payments of $105 per month; the rate is the same for all personnel.
Savings Deposit Program. Another benefit available to those deployed to
Afghanistan, Iraq, and other designated areas nearby is eligibility for the Savings Deposit
Program. This program allows service members to earn a guaranteed rate of 10% interest
on deposits of up to $10,000, which must have been earned in the designated areas. The
deposit is normally returned to the servicemember, with interest, within 90 days after he or
she leaves the eligible region, although earlier withdrawals can sometimes be made for
emergency reasons.
Combat Zone Tax Exclusion. Finally, one of the more generous benefits for many
of those serving overseas in OEF or OIF is the “combat zone tax exclusion.” Afghanistan
and the airspace above it have been designated a “combat zone” since September 19, 2001.
Military personnel serving in direct support of the operations in this combat zone are also
eligible for the combat zone tax exclusion. Additionally, certain areas in the Persian Gulf
region — including Iraq — have been designated combat zones since 1991. Military
personnel serving in direct support of operations in this combat zone are also eligible for the
combat zone tax exclusion. For enlisted personnel and warrant officers, this means that all
compensation for active military service in a combat zone is free of federal income tax. For
commissioned officers, their compensation is free of federal income tax up to the maximum
amount of enlisted basic pay plus any imminent danger pay received. While this benefit
applies only to federal income tax, almost all states have provisions extending the benefit to
their state income tax as well.
Rest and Recreation (R&R) for Personnel In OIF/OEF. As has been widely
reported, military personnel serving 12-month tours of duty in Iraq and Afghanistan are
entitled to one 15-day period of “R&R” or home leave in the United States during their tour.
Initially the program was designed to fund the travel of personnel from either theater of
operations to whichever airport in the United States they landed in, and any further travel
within the United States had to be funded by the individual. However, Congress has since
authorized funding of internal travel within the United States. Reimbursement will be for
the military member’s travel; there is not any funding for dependent travel to meet military
personnel on R&R. (There has been some funding of such dependent travel by private
charitable organizations.)
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Additional Benefits for Some Personnel in OIF/OEF.
Extra Pay for Soldiers With Involuntarily Extended Tours. Approximately
20,000 Army soldiers whose 12-month tour in Iraq has been involuntarily extended by 90
days are being paid an additional $1,000 per month, composed of an extra $200 per month
in Hardship Duty Pay for the maximum HDP amount of $300/month (HDP is already being
paid to all OIF/OEF personnel at a $100 per month rate); and another $800 per month in
Assignment Incentive Pay (37 USC 307 authorizes a maximum of $1,500 per month in
Assignment Incentive Pay to be paid to personnel serving in any assignments designated as
eligible for such pay).
Extra Pay for Soldiers Who Voluntarily Reenlist in OIF/OEF. Army soldiers
between the rank of specialist/corporal (pay grade E-4) and staff sergeant (E-6), who
reenlisted/reenlist between March 18, 2003 (the date before OIF began), and September 18,
2004, and volunteer for assignment in Iraq, Kuwait, or Afghanistan, are eligible for a $5,000
lump sum bonus. They must have at least 17 months of military service and no more than
10 years. If they have already received another reenlistment bonus, they can have the larger
of this latter bonus and the $5,000, but not both.
8. What Additional Military Benefits is Congress Considering in
2004?
The following military compensation initiatives are in the conference version of the FY2005
National Defense Authorization Act (NDAA).
! Completing the effort begun in the late 1990s to increase housing
allowances to the point where military personnel have no extra out-of-
pocket housing expenses.
! Expanding educational assistance for activated reservists; reserve enlistment
and reenlistment bonuses; and authorizing a foreign language proficiency
bonus for reservists.
! Authorizing reimbursement for servicemembers who spent their private
funds for “protective, safety, or health equipment” used in Operations Noble
Eagle (homeland defense of the United States), Iraqi Freedom, or Enduring
Freedom (Afghanistan).
! Placing numerous management controls and notification requirements on
military commissaries and exchanges, designed to improve their services
and inform Congress of possible attempts by DOD to diminish commissary
or exchange benefits.
! Requiring a pre-separation physical examination before a reservist is
released from active duty (thus possibly establishing a disability requiring
treatment and/or other benefits).
! Increasing health benefits for reservists prior to, during, and after release
from a mobilization; and expanding TRICARE (the government’s insurance
program for military families getting care from civilian sources) benefits for
reservists prior to deployment after mobilization.
! Providing a travel and transportation allowance to family members of a
servicemember who dies on active duty to attend the member’s funeral.
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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.
Government Accountability Office [formerly General Accounting Office). Military
Personnel: DOD Has Not Implemented the High Deployment Allowance that Could
Compensate Servicemembers Deployed Frequently for Short Periods. Report no.
GAO-04-805. June 2004. 28 p.
Department of Defense. Morale and Quality of Life Study Issues Document/Briefing Slides
and Study Overview. Located online at the DOD’s website at
[http://www.defenselink.mil/news/Jun2001/d20010621qoli.pdf].
Uniformed Services Almanac; National Guard Almanac, Reserve Forces Almanac, Retired
Military Almanac. 2004 Editions. Falls Church, VA, Uniformed Services Almanac,
Inc., 2004.
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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