Army Pay Charts - Army Times

A fresh look at pay

A new congressional report recommends a radical overhaul of military compensation. Neither service members nor the lawmakers and policymakers who decide pay levels understand the true value of cash compensation and noncash military benefits, according to the nonpartisan Congressional Budget Office in its report, “Evaluating Military Compensation,” released June 29. When noncash benefits are considered, the CBO says, the military’s compensation package is highly competitive with the private sector.

The problem, the authors argue, is that service members fixate on basic pay and housing allowances, but fail to factor in the value of benefits like family health care, discounted shopping and subsidized child care. Add to that deferred compensation, like retirement and veterans benefits, they say, and the value of members’ compensation is effectively doubled.

So when all that is taken into account, the authors say, the so-called pay gap between military and civilian wages disappears.

The argument fits well with senior defense officials and budget masters at the White House, who have argued that higher raises were “unnecessary.”

Instead, the CBO study argues that the value of military compensation needs to be made “more visible to service members and decision makers” and offers three ways that can be achieved:

•Combine cash benefits — basic pay and housing and food allowances — into a single payment. The total would rise each year to match private-sector wage increases, holding down annual increases if growth in housing and food costs outstrip average private-sector pay increases, the CBO says. Left unsaid is whether the service members’ tax advantage — housing and food allowances are not currently taxable — would disappear in the process.

•Eliminate differences in housing allowances for single people and those with families. Long favored by single troops, this idea was also suggested by a compensation advisory panel formed in 2005 by former Defense Secretary Donald Rumsfeld. It would not save money in the short run, as the least divisive way to make that change would be to increase pay for single members to match that of married members. But in the long run, CBO says, paying single and married people the same could save money by encouraging more single people to join the military and by eliminating a significant incentive for them to marry.

•Shift to a cafeteria-style plan for benefits. Troops would be assigned a certain amount of money they could use to “buy back” the fringe benefits they want most, such as family health benefits, subsidized child care or commissary shopping privileges. This idea, which CBO has advocated for years, would actually reduce benefits, because the allowance would not cover everything now available for every service member.

The CBO has made these suggestions before in previous reports, including its annual report on potential ways to reduce federal spending. But the most lasting impact of this report could be its assessment of the pay gap and its argument against larger-than-civilian-sector raises.

Lawmakers working on the 2008 defense authorization bill tentatively have agreed on a 3.5 percent all-ranks raise in basic pay effective Jan. 1, slightly more than the 3 percent requested by the Bush administration and enough to shave 0.5 percent off the estimated 3.9 percent gap between military and private-sector wages.

To further reduce the gap, the House of Representatives has proposed continuing to provide annual military raises through January 2011 that are 0.5 percentage points bigger than average private-sector pay hikes.

The gap is measured by comparing the growth in military and private sector pay since 1982, the second year of double-digit military pay raises designed to bring military pay to parity with civilian compensation.

But the CBO report says the gap is a myth perpetuated by a system that focuses only on basic pay, which by its calculations accounts for a third or less of a service member’s compensation.

Matthew Goldberg, one of the CBO analysts who worked on the report said a pay comparison focusing only on basic pay ignores the fact that the military “is much richer in benefits” than the private sector.

When total military pay and benefits — including pay and allowances, deferred benefits such as retired pay and veterans benefits, and noncash benefits such as health care and subsidized shopping and child care — are counted, service members make almost twice as much and have seen an overall 21 percent increase in compensation since 2000, CBO says.

That figure could be even higher: Bonus payments and combat-related allowances have also increased dramatically in the same period. The report does not address this fact.

Another point the report seems to ignore is how few troops actually remain in the military until retirement. The report calculates the value of retired pay and retiree health care benefits total 17 percent to 22 percent of an average enlisted member’s compensation. In fact, that deferred compensation will be of no value to the more than 80 percent of enlisted members who don’t earn military retirement.

The report was done at the request of the Senate Budget Committee, which specifically asked for a comparison of civilian wages and the pay of military enlisted personnel — 83 percent of the force, said CBO Director Peter Orszag.

Top 30 percent

The report’s conclusions about the pay gap track with what the Pentagon has been saying for years. Defense officials set a goal of placing military pay at the 70th percentile of civilians with similar education and experience — meaning troops would be compensated better than 70 percent of their civilian peers.

Goldberg said that standard was met last year, when, in fact, pay for most military paygrades reached the 75th percentile.

Military payroll costs have become a major budget issue, with defense and service officials warning that mushrooming pay and benefits for active, reserve and retired personnel and their family members have reached the point where they are squeezing weapons modernization projects.

CBO says enlisted personnel make about twice as much as they think because of noncash benefits. The same point has been made by budget-conscious lawmakers since the start of the all-volunteer force in 1973, and is one reason why troops get an annual statement showing the total value of their military pay and benefits, including a list of fringe benefits — which they may or may not use.

Along with disputing the existence of the pay gap, the CBO report also says the custom of linking annual military raises to the Employment Cost Index, a measure of average private-sector raises calculated by the Labor Department’s Bureau of Labor Statistics, is flawed.

Troops generally are younger and less educated than the average workers measured by the index, CBO says, which renders inaccurate any comparisons of military pay using the ECI.