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Soldier Pay: How Much Is Enough?

Tuesday, April 15, 2014

The 1 percent basic pay raise proposed for soldiers in the 2015 federal budget serves as an example of the bottom line for calculating military salaries. For all the studies of making military pay competitive with private-sector wages and comparable with what soldiers could earn if they weren’t in uniform, the decision about the raise often comes down to a gut call in response to a simple question: How low can you go?

Effective January 1, 2015, the proposed raise is the same percentage amount as the 2014 pay increase, which DoD and the Obama administration sold to a reluctant Congress as a modest bit of belt-tightening needed to make sure there was enough money to pay for other military priorities. Senior military officials are making the same case again, with an added ingredient to make the sacrifice of a smaller raise seem more palatable. The Army’s general officers, along with the flag and general officers in the other services, would get no raise in 2015 under the plan.

If adopted, this would mark the second consecutive year when basic pay increases are less than called for under the Federal Employees Pay Comparability Act of 1990, which creates a formula for military and federal civilian raises linking them to the Employment Cost Index, a measurement of average private-sector increases. If followed—and it frequently isn’t—the 2014 and 2015 raises would be 1.8 percent each year instead of 1 percent.

How much to pay troops has been a subject of extended debate from the earliest days of the Army. In the Continental Army, only officers were paid in the beginning, with troops receiving food and forage, but by 1775, privates were earning $6.66 monthly, although they were required to find their own weapons and clothing. By 1790, there was a formal system of pay plus allowances, similar to the current concept.

Over the decades, there were several revisions in compensation as the military’s needs changed, with one of the biggest revisions resulting from recommendations from the Gates Commission, a body appointed in 1969 to come up with a plan for ending the military draft. The commission recommended a 45 percent increase in total entry-level compensation, along with improvements in living and working conditions, as a way of getting people to volunteer for military service. The $437 monthly pay was based on an estimate of how much money it would take to get 18-year-olds to sign up and not on any comparison of private-sector wages.

Until 1980, pay raises rose at an uneven clip, with money distributed between basic pay received by everyone and housing and subsistence allowances received by a few. In fiscal year 1981, with the services warning about problems recruiting and retaining quality people, an 11.7 percent pay increase was approved. It was followed in fiscal year 1982 by an average 14.3 percent increase in an adjustment believed at that point to have made military pay scales equal with the private sector.

That equality was short-lived, as military pay raises fell below average private-sector raises for nearly all of the next 16 years. By 1999, this resulted in what was perceived as a cumulative 13.5 percent gap between military and civilian. The so-called pay gap was measured by comparing military and private-sector pay increases, and not by any measure of comparable or competitive pay.

Congress got involved and for 13 consecutive years approved pay raises meeting or exceeding private-sector salaries. This shaved the perceived pay gap to about 2 percentage points, although DoD declared the gap—if it ever existed—had closed by 2007, and the nonpartisan Congressional Budget Office estimated in 2010 that military pay was 10.3 percent ahead of the private sector.

The 2011 edition of the Military Compensation Background Papers, a DoD document explaining the complicated array of pays and benefits, says that setting military raises involves a controversial principle of comparability and competitiveness. This requires comparing salaries of soldiers to those of civilians who have substantially similar work, experiences and education. It is often a judgment call because there are very few military skills with a civilian equivalent in terms of responsibility, danger and other military-unique factors.

The RAND Corporation declared in a 2012 report that military pay was doing very well in comparison with the civilian sector as a result of a combination of a 45 percent increase in basic pay over a decade while civilian pay had dropped by 4 to 8 percent in much of the private sector. “Also, the cost of health care has increased rapidly in the civilian sector but remains at zero for service members and at quite low cost for their families,” the report said about the possibility of limiting future pay increases. In terms of being competitive, RAND found total military compensation ranked high in comparison to civilians of comparable age and education, especially 23- to 27-year-olds who had a high school diploma but no college.

Unlike in the 1970s, when DoD was trying to adjust pay scales to get volunteers to fill the military at the end of conscription, the Army now is cutting troops and scaling back on recruiting, reducing the risk to the force from pay caps.

“A more attractive compensation system does not necessarily translate into improved recruiting and retention,” wrote Todd Harrison, a senior fellow for defense budget studies at the Center for Strategic and Budgetary Assessments in a 2012 study called “Rebalancing Military Compensation: An Evidence-Based Approach,” which looked at options for soldier pay and benefits. “Compensation is an important factor for many people serving in the military, but it is by no means the only factor. The desire to serve one’s country has been and will continue to be an important part of what motivates people to join the military.”

Harrison’s study asked people to weigh the value of one military benefit against another, revealing that an increase in basic pay was the most important part of military compensation for junior enlisted personnel, who make up about half of the military. For other ranks, basic pay increases rated behind retirement collection age, time to qualify for retirement and active duty dependent health care in relative importance, according to the study.

Harrison’s study raised questions about the value of across-the-board pay increases in which everyone receives the same percent increase. “Increasing basic pay for junior enlisted has more than six times the impact per dollar than increasing basic pay for senior officers,” he wrote. “This finding calls into question the wisdom of across-the-board pay raises.”

The study also shows there is no harm to DoD from freezing pay scales for generals and admirals, as they are unlikely to leave the military because they did not get a pay raise. For senior officers, Harrison’s study showed the most important part of military compensation was the ability to collect retirement pay as soon as they retire.

There is harm, in terms of recruiting and retention, of capping pay, according to the study. Four out of five troops who responded to Harrison’s online questionnaire said they would be willing to delay receiving their first military retirement check until age 50 in return for an immediate 1 percent pay raise. The average age for beginning to receive retired pay is 47 for officers and 43 for enlisted members. DoD is considering changes to military retired pay, but these changes are unlikely to take place until 2016, and current soldiers are expected to be exempt from any changes, according to assurances offered by Pentagon leaders.