Military Pay and Benefits: Key Questions and Answers

Military Pay and Benefits:
Key Questions and Answers
Updated October 31, 2008
Charles A. Henning
Specialist in Military Manpower Policy
Foreign Affairs, Defense, and Trade Division

Military Pay and Benefits: Key Questions and Answers
In the late 1990s, the military services were facing considerable recruiting and
career retention problems. In responding, Congress was mindful of how inadequate
pay had contributed to decreased recruit quality in the late 1970s. It authorized larger
pay raises, increased special pays and bonuses, provided more recruiting resources,
and repealed planned military retired pay reductions for future retirees.
In the spirit of national unity following the attacks of September 11, 2001,
recruitment improved. The programmatic changes noted above also helped recruiting
substantially. However, the grueling pace of deployments to and from Iraq and
Afghanistan, combined with the dangers of combat, began to cause long-anticipated
recruiting problems for the All-Volunteer Force. In 2005, the Army, Army National
Guard, and Army Reserve all fell short of their recruiting goals. An infusion of
additional recruiters and a congressional increase in the maximum enlistment bonus
from $20,000 to $40,000, contributed to the active Army meeting its 2006, 2007 and
2008 recruiting targets. Career retention of servicemembers beyond their initial
period of obligated service is difficult to measure, due to the suspended separation
and retirement of many personnel since September 11, 2001, but so far retention is
reported to be more than satisfactory. However, the services anticipate a challenging
recruiting year in FY2009.
Debate continues over what kinds of pay and benefit increases are best for
improving recruiting and retention. Of particular interest is the balance between
across-the-board pay raises on the one hand, and ones targeted by grade, years of
service, and occupational skill, on the other; and between cash compensation on the
one hand and improvements in benefits such as housing, health care, and installation
services on the other.
The issue of pay comparability between military and civilian pay, commonly
referred to as the “pay gap,” continues to receive emphasis. While many analysts
believe the gap has been reduced to less than three percent by the FY2009 pay raise,
others argue that pay and benefit increases since 9/11 have eliminated the gap. The
issue persists, in part, because the numerous different elements of military pay make
it difficult to compare to civilian salaries and other benefits.
Since the early 1990s, numerous changes in benefits have greatly favored
individual members. These include changes in the cash allowance received by
personnel not living in military housing, a major overhaul of military health care, and
repeal of military retired pay cuts first enacted in 1986.
This report will be updated as needed.

Most Recent Developments..........................................1
Key Questions and Answers.........................................1
1. Why Did the Adequacy of Active Duty Military Pay Become a
Major Issue Beginning in the Late 1990s?.......................1
2. What Kinds of Increases in Military Pay and Benefits Have Been
Considered or Used in the Past?..............................2
3. What is “Pay Table Reform”?..................................3

4. How Are Each Year’s Increases in Military Pay Computed?

Definitions ...............................................5
Annual Percentage Increases in Military Basic Pay................5
Annual Increases in Basic Allowances for Housing (BAH) and
Subsistence (BAS).....................................6
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
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”?........................9
Measuring and Confirming a “Gap”...........................9
Estimates of a Military-Civilian Pay Gap......................10
If There Is a Pay Gap, Does It Necessarily Matter?...............12
7. What Benefits Are Specifically Available For Military Personnel
Participating in Operation Iraqi Freedom (OIF) and Operation
Enduring Freedom?.......................................12
Hostile Fire/Imminent Danger Pay...........................12
Hardship Duty Pay........................................13
Family Separation Allowance...............................13
Per Diem...............................................13
Savings Deposit Program...................................13
Combat Zone Tax Exclusion................................13
Rest and Recreation (R&R) for Personnel In OIF/OEF............14
8. What Cash Lump-Sum Death Benefits Are Available to the Survivors of
Military Personnel Killed in Iraq or Afghanistan? ...............14

Military Pay and Benefits: Key Questions
and Answers
Most Recent Developments
With ongoing military operations in Iraq and Afghanistan, military pay and
associated benefits continue to receive significant congressional interest. As concerns
continue over military recruiting and retention, this interest in military pay, bonuses
and benefits will probably continue.
The Army missed its FY2005 recruiting goal of 80,000 by 6,627 soldiers. This
was the first time in 26 years that the active Army had failed to meet or exceed the
annual recruiting mission. With the help of approximately 1,100 additional recruiters1
and an increase in the maximum enlistment bonus from $20,000 to $40,000, the
Army met its FY2006, FY2007 and FY2008 recruiting mission of 80,000 each year
even though there was a decline in the number of High School Diploma Graduates
and an increase in the number of waivers required. The services anticipate another
challenging recruiting year in FY2009.
Key Questions and Answers
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
!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

1 Section 635, P.L. 109-163, January 6, 2006.

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. Proponents of this viewpoint argue that, even if quantitative indexes of
recruiting and retention appear to be satisfactory, 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
Beginning in the mid-1990s, several new factors caused recruiting and retention
problems severe enough to move Congress once again to 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;
(7) skepticism about new missions such as “operations other than war,”
“peacekeeping,” or “peace enforcement”; and (8) the availability of government
educational assistance from other sources (“the GI Bill without the GI”).
2. 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 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 over 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 can 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 is likely 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 sound approaches to improving recruiting
and retention as much as possible. In addition, many observers believe that the recent
enactment of the new Post 9/11 GI Bill benefit with its generous benefits and
transferability options will have an overall beneficial impact on both recruiting and
Recruiting and retention problems are not necessarily solved 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 retirement benefits; 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 suggests 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 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 perceived issues in
compensation. However, few analysts believe that recruiting and retention rates can
be brought up to service target levels without continuing to maintain the momentum
of recent pay raises. 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.

3. What is “Pay Table Reform”?

The current military pay table displays the amount of monthly basic pay2 which
a servicemember is entitled to based on the member’s pay grade3 and length of

2 Basic pay is monthly compensation that all military personnel in the same pay grade and
with the same number of years of service receive.
3 As defined by Section 101 of Title 10 U.S.C., the term “grade” refers to a step or degree
within a military rank while “rank” means an order of precedence among members of the

service. The length of service component of the table ranges from “under 2” to “over

26” years of service and provides an incremental longevity pay raise every two years.4

As a result, servicemembers receive their final longevity raise at 26 years of service
even though their rank may provide for service to or beyond 30 years. The current
pay table has changed very little since it was introduced in 1958.5
Some analysts have advocated longer military careers rather than the current
emphasis on youth and vigor and have argued that the pay tables should be extended
or “reformed” to allow for service beyond 30 years with continuing longevity
increases. Others have described this as the “40-year” pay table.
The FY2007 National Defense Authorization Act (NDAA) included several
significant changes to the pay table. First, effective April 1, 2007, the pay table has
been extended from “over 26” to “over 40” years of service.6 Second, and also
effective April 1, 2007, the NDAA provided additional longevity increases at 30, 34
and 38 years of service for the most senior enlisted, warrant officer and officer pay
grades.7 For example, the final longevity raise for E-8, W-4, 0-6 and 0-7 will occur
at “over 30” years; at “over 34” for pay grades E-8, W-5 and 0-8; and at “over 38”
for pay grades 0-9 and 0-10. Third, effective January 1, 2007, the NDAA provides
additional retirement credit for service beyond 30 years, continuing to accrue at the
rate of 2.5 percent per year.8 As a result, a servicemember who retires with 40 years
of service will qualify for 100 percent of basic pay in their retirement.
The cumulative effect of these changes seems to suggest congressional support
for longer military careers. However, the NDAA did not address other cited
constraints to facilitating longer careers. Specifically, there were no changes to
mandatory retirement based on years of service or age and no increase in the
percentage of E-8, E-9 and W-5 who may be on active duty at a given time.

3 (...continued)
armed forces. Commissioned officers have been assigned pay grades 0-1 through 0-10,
warrant officers have been assigned W-1 through W-5 and enlisted personnel have been
designated as E-1 through E-9.
4 Some pay grades, especially those of lower ranking personnel, are “capped” at designated
points, generally because they should have been promoted to the next higher grade. For
example, the last longevity increase for E-5 (Sergeant in the Army and Marine Corps, Staff
Sergeant in the Air Force and Petty Officer Second Class in the Navy) occurs at “Over 12”
while the final increase of 0-5 (Lieutenant Colonel in the Army, Air Force and Marine
Corps) occurs at “Over 22”.
5 Military Compensation Background Papers: Compensation Elements and Related
Manpower Cost Items, Their Purposes and Legislative Backgrounds, Sixth Edition, April


6 Section 601, P.L. 109-364.
7 Section 601, P.L. 109-364.
8 Section 642, P.L. 109-364.

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
servicemembers receive BAS but at different rates based on officer or enlisted status.
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 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 estimate of the cash value of non-monetary benefits such as health care or9
military retail stores.
Annual Percentage Increases in Military Basic Pay.
Military Basic Pay Raises Linked to Employment Cost Index (ECI)
Percentage Increases. Permanent law (37 U.S.C. 1009) provides that monthly
basic pay is to be increased by the annual percentage increase in the Employment
Cost Index (ECI). For fiscal years 2004, 2005, and 2006, the military raise is to be
the ECI increase plus an additional one half percentage point (i.e., if the ECI annual
increase were to be 3.0%, the military raise would be 3.5%). The ECI, calculated by
the Department of Labor’s Bureau of Labor Statistics, measures annual percentage
increases in wages, salaries and employer costs for employee benefits on all private-
sector employees, although it can be subdivided to measure increases in specific
categories of such employees. Indexing the annual military pay raise to the annual
increase in the ECI was established by Sec. 602 of the FY2004 NDAA (P.L. 108-136,
November 24, 2003; 117 Stat. 1498, amending 37 U.S.C. 1009). Previously, the
annual military pay raise was linked to the annual percentage increases in the General
Schedule (GS) federal civil service pay scale.
Congress Usually Sets the Amount of the Military Pay Raise.
Despite the statutory formula, which could operate each year without any further
action, 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

9 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.

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 deferring to the permanent statutory provision. Therefore,
although Congress may legislate the military 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 U.S.C. 403) and subsistence (37 U.S.C. 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. BAS is paid at a uniform
rate to all officers and at a uniform but slightly higher rate for all 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. In
addition, there have been calls to merge BAS with basic pay to reduce the complexity
of military compensation and the need for BAS computations each year.
5. What Have Been the Annual Percentage Increases in
Active Duty Military Basic Pay Since 1993 (FY1994)? What
Were Each Year’s Major Executive and Legislative Branch
Proposals and Actions on the Annual Percentage Increase in
Military Basic Pay?
The following subsections itemize action on the active duty military basic pay
increase going back to 1993 (the FY1994 budget). Unless otherwise noted, all
increases were proposed to be effective on January 1 of the fiscal year indicated.
The same is true of discussions of future pay raises.
2008 (FY2009). Statutory formula: 3.4%. Administration request: 3.4%. Final
version: 3.9% across-the-board increase (0.5% higher than the annual ECI increase).

2007 (FY2008). Statutory formula: 3.0%. Administration request: 3.0% across-

the-board. Final version: 3.5% across-the-board. The presidential veto of the initial
FY2008 NDAA resulted in a 3.0% pay raise taking effect on January 1, 2008
(statutory formula) with the remaining 0.5% being made retroactive to January 1,

2008 upon enactment of the final version of the FY2008 NDAA (H.R. 4986; P.L.


2006 (FY2007). Statutory formula: 2.2%. Under current law, the FY2007 pay
was based solely on the ECI and not a rate 0.5% higher than the ECI. Administration

request: 2.2% across the board. Final Version: 2.2% across the board but with an
additional April 1, 2007 targeted pay raise that would be as high as 8.3 percent for
some warrant officers and range from 2.5 percent for E-5s to 5.5 percent for E-9s.10
2005 (FY2006). Statutory formula: 3.1%. (0.5% higher than the annual
increase in the Employment Cost Index (ECI) which was 2.6%). Administration
request: 3.1% across-the-board. Final version: 3.1% across the board.

2004 (FY2005). Statutory formula: 3.5%. Administration request: 3.5%

across-the-board. Final version: FY2005 NDAA (Section 601, P.L. 108-375,
October 28, 2004; 118 Stat. 1811), 3.5% across-the-board. [Unlike the years 1999-
2003 (FY2000-FY2004), the Administration did not request and the Congress did not
enact, a “targeted” increase based on which particular pay grades and years-of-service
cohorts need more pay to improve career retention.]
2003 (FY2004). Statutory formula: 3.7%. Administration request: Average
4.1%; minimum 2.0%; maximum of 6.5%. Final version. FY2004 NDAA (Section
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, #3, 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 required an increase equal to the ECI plus 0.5% during FY2001-
FY2006, was not 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 Bob Stump 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 (Section 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

10 Maze, Rick, “DoD seeks targeted raises of up to 8.3 percent,” Army Times, March 20,


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; the original statutory formula would have led to a proposed raise of
2.7%). Administration request: 3.7%. Final increase: The FY2001 Floyd D. Spence
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.

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


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 issue of a military-civilian “pay gap” raises several questions:
!How can the existence of a gap be determined and the gap be
!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 any such gaps?
A wide range of studies over the past several decades has 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, make it difficult
to validate any generalizations about whether there is a “gap” between military and
civilian pay. Some advocates for federal civil servants argue that federal civilian pay
lags behind private sector pay, which in turn leads some people, given the past
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.
As noted above, the debate, in recent years, over “pay parity” between the
military and federal civil service pay increases, involves the percentage amount of the
civilian pay raise. It has not, so far, involved the military pay raise proposal at all.
The issue has been whether the civil service should get a percentage raise identical
to that of the military, or whether the military should get a higher raise because of (1)
the much greater degree of danger and hardship military service entails, compared to
most civilian employment, especially in time of war, and (2) the need to cope with
actual or forestall potential military recruiting and retention problems.
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 vary 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: a retirement annuity
after “vesting” at 20 years of service, 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 debatable assumptions that
must be made to generate such an estimate.
Second, it is also extremely difficult to establish a 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 this is
always 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 either to illustrate
a gap that favors civilian pay levels or to refute 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 find a percentage difference of between 3% and 13% in
recent years. With the FY2009 pay raise, the pay gap is estimated at 3%.
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.11
In 2002, General Accounting Office (GAO) analysts itemized the components
of the military benefit package — such as military retirement, health care,
Servicemembers’ 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 benefits
in the private sector, either by figuring out their dollar worth or by itemizing their
exact provisions in great detail.12
This GAO report was followed in 2008 by the 10th Quadrennial Review of
Military Compensation (QRMC)13 which also addressed the pay gap issue and
recommended that a new comparative model could be better suited to measuring the
difference between military pay and comparable civilian occupations. The
commission recommended replacing Regular Military Compensation (RMC) with
a new measure called Military Annual Compensation (MAC). While RMC includes
base pay, BAH, BAS and the federal tax advantage from the two allowances, MAC
would also factor in the health care benefit, the value of the military retirement
annuity and state and Social Security tax advantages. Based on the QRMC analysis
and using MAC as the comparative tool, enlisted and officer personnel fare better
than their civilian counterparts in cash compensation according to the economic
modeling done by the QRMC. This represents the first time that a QRMC has
recommended inclusion of benefits when comparing military and civilian
compensation levels.
While estimating the pay gap continues to be a challenge, it appears that the
substantial increases in military pay and benefits since the late 1990s, whatever the
existing relative relationship of military to civilian compensation as of that time, have
probably had the effect of favoring the military.

11 See, for example, Office of the Under Secretary of Defense for Personnel and Readiness.
Report of the Ninth Quadrennial Review of Military Compensation. Vol. I. Washington,
March 2002: passim, but especially 29-74, 137-82, 188-89; and Asch, Beth J., and James
R. Hosek. “Military Compensation: Trends and Policy Options,” Documented Briefing.
Santa Monica, CA, RAND Corporation, 1999.
12 U.S. General Accounting Office [now Government Accountability Office], Military
Personnel: Active Duty Benefits Reflect Changing Demographics, but Opportunities Exist
to Improve, GAO-02-935, September 18, 2002.
13 The Quadrennial Review of Military Compensation or QRMC is required every four years
by 37 U.S.C. 1008(b). The 10th QRMC was convened in August 2005 and submitted the
final portion of its report in July 2008. Volume 1, which included the recommendations
concerning the pay gap, can be viewed at [http://www.defenselink/mil/prhome/docs
/T enth_QRMC_feb2008_V ol%20I.pdf].

If There Is a Pay Gap, Does It Necessarily Matter? Some have
suggested that the emphasis on a pay gap, whether real or not, 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, some ask 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
might be appropriate, 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 might be no reason to raise military pay.
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.
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, [A non-profit group that works to advance the interests of military members.]
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?14
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. 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 by the Secretary of Defense.
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) (P.L. 108-136, section 619) temporarily increased this
rate to $225, through December 31, 2004. The FY2005 NDAA made this increase
permanent. (For some detailed background on HF/IDP, see CRS Report RS21632,

14 Much of this material is taken from CRS Report RL31334, Operations Noble Eagle,
Enduring Freedom, and Iraqi Freedom: Questions and Answers about U.S. Military
Personnel, Compensation, and Force Structure, by Lawrence Kapp and Charles Henning.

Military Pay: Controversy Over Hostile Fire/Imminent Danger Pay and Family
Separation Allowance Rates, by Lawrence Kapp.)
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), 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 previously permitted by the statute was$300 per month;
this maximum was increased to $750 per month by the FY2006 NDAA and then
raised to $1500 per month by the FY2008 NDAA. However, the current DOD-
approved rate for HDP for both Iraq and Afghanistan is $100 per month.
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 $250 per month.
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. 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 the 1990-1991 Persian Gulf War. 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.

In addition, military personnel who receive a reenlistment bonus while stationed
in a combat zone do not have to pay federal income tax on any of the bonus. The
amounts involved can be substantial. For example, the Army recently increased
reenlistment bonuses for Special Forces NCOs to a lump sum of $150,000 for a six-
year reenlistment; $75,000 for five years; $50,000 for four years; and $30,000,
$18,000 and $8,000 for three, two, and one year respectively. Other reenlistment
bonuses for a wider range of military occupational specialties have been increased
to up to $50,000 for a five-year commitment.15 The 2006 NDAA boosted the
maximum reenlistment bonus to $90,000.
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
no funding for dependent travel to meet military personnel on R&R. (There has been
some funding of such dependent travel by private charitable organizations.)
8. What Cash Lump-Sum Death Benefits Are Available to the
Survivors of Military Personnel Killed in Iraq or Afghanistan?
Currently, the survivors (usually spouses or parents) of military personnel who
die while serving in Operations Iraqi Freedom or Enduring Freedom (OIF or OEF)
are entitled to several lump-sum monetary benefits. These include a $100,000 death
gratuity, payable within a few days of the death to assist families in dealing with
immediate expenses; a $255 Social Security lump sum; coverage of burial expenses
up to $6,900 [a Department of Veterans Affairs (VA) benefit]; and Servicemembers’
Group Life Insurance (SGLI) of $400,000 (all servicemembers are automatically
enrolled in this benefit, which is paid for by an approximate $16 monthly deduction
from pay; members may opt out or reduce the coverage, but less than 1% do so).16

15 Tice, Jim. “Critical-skills bonus program is expanding,” Army Times, March 7, 2005, p.


16 The death gratuity and the SGLI maximum amount were raised substantially by the
FY2005 Supplemental Appropriations Act for Defense, the Global War on Terror, and
Tsunami Relief (the “FY2005 Supplemental”) (P.L. 109-13, May 11, 2005; 119 Stat. 231).
The death gratuity was raised from $12,420 to $100,000; and the maximum SGLI coverage
was raised from $250,000 to $400,000 with the first $150,000 provided free for personnel
in a combat zone. Because these increases are in an FY2005 appropriation law, they were
scheduled to expire at the end of FY2005. However, the 2006 NDAA applied the $100,000
death gratuity to all active-duty deaths (not just those that were combat-related) and made
the payments retroactive to October 7, 2001. In addition, survivors of service members who
died of non-combat causes on active duty between October 7, 2001 and the date of
enactment of the 2006 NDAA will receive retroactive payments of $150,000. This latter
payment closed an SGLI loophole. The FY2007 John Warner National Defense

There are also a wide range of recurring-payment survivor benefits from both DOD
and the VA, as well as non-monetary benefits.17
For more information on military death benefits, see CRS Report RL31334,
Operations Noble Eagle, Enduring Freedom, and Iraqi Freedom: Questions and
Answers about U.S. Military Personnel, Compensation, and Force Structure, by
Lawrence Kapp and Charles Henning; and CRS Report RL32783, FY2005
Supplemental Appropriations for Iraq and Afghanistan, Tsunami Relief, and Other
Activities, by Amy Belasco and Larry Nowels.

16 (...continued)
Authorization Act increased the amount of “free” SGLI coverage from $150,000 to
$400,000 for all servicemembers serving in OIF and OEF.
17 For the earlier legislative history of some of these benefits, monetary and non-monetary,
see Office of the Secretary of Defense. Military Compensation Background Papers. Sixth
Edition. April 2005. A more detailed summary of all such benefits and a comparison of
them with federal civilian and state and local government survivor benefits is at U.S.
Government Accountability Office, Military Personnel: Survivor Benefits for
Servicemembers and Federal, State, and City Government Employees, GAO-04-814, July