LegiStorm

Summary:

From the earliest days of the republic, the federal government has compensated members of the Armed Forces for their services. While the original pay structure was fairly simple, over time a more complex system of compensation has evolved. The current military compensation system includes cash payments such as basic pay, special and incentive pays, and various allowances. Servicemembers also receive noncash benefits such as health care and access to commissaries and recreational facilities, and may eventually qualify for deferred compensation in the form of retired pay and other retirement benefits. This report provides an overview of military compensation generally, but focuses on cash compensation for current servicemembers. Since the advent of the all-volunteer force in 1973, Congress has used military compensation to improve recruiting, retention, and the overall quality of the force. Congressional interest in sustaining the all-volunteer force during a time of sustained combat operations led to substantial increases in compensation in the decade following the September 11 attacks. More recently, concerns over government spending have generated congressional and executive branch interest in slowing the rate of growth in military compensation. Recent initiatives in this regard have included presidentially directed increases in basic pay below the rate of increase for the Employment Cost Index (ECI) for 2014-2016 and statutory authority for DOD to reduce BAH payments by 1% of the national average monthly housing cost per year from 2015 to 2019 (for a maximum reduction of 5% under the national monthly average housing cost). Some have raised concerns about the impact of personnel costs on the overall defense budget, arguing that they decrease the amount of funds available for modernizing equipment and sustaining readiness. Others argue that robust compensation is essential to maintaining a highquality force that is vigorous, well-trained, experienced, and able to function effectively in austere and volatile environments. The availability of funding to prosecute wars in Iraq and Afghanistan mitigated the pressure to trade off personnel, readiness, and equipment costs, but the current budgetary environment appears to have brought these trade-offs to the fore again. DOD spends about $100,000-$110,000 per year to compensate the average active duty servicemember—to include cash, benefits, and contributions to retirement programs—although some estimates of compensation costs are higher. However, gross compensation figures do not tell the full story, as military compensation relative to civilian compensation is a key factor in an individual’s decision to join or stay in the military. Thus, the issue of comparability between military and civilian pay is an often-discussed topic. Some analysts and advocacy groups have argued that a substantial “pay gap” has existed for decades—with military personnel earning less than their civilian counterparts—although they generally concede that this gap is fairly small today. Others argue that the methodology behind this “pay gap” is flawed and does not provide a suitable estimate of pay comparability. Still others believe that military personnel, in general, are better compensated than their civilian counterparts. This latter perspective has become more prominent in the past few years. The Department of Defense takes a different approach to pay comparability. The 9th Quadrennial Review of Military Compensation (QRMC), published in 2002, argued that compensation for servicemembers should be around the 70th percentile of wages for civilian employees with similar education and experience. However, according to the 11th QRMC, published in 2012, it had reached the 83% level for officers and the 90% level for enlisted personnel. On January 29, 2015, the congressionally established Military Compensation and Retirement Modernization Commission delivered its final report to Congress. It included a variety of recommendations for restructuring military compensation, most notably with regard to the military retirement and health care system, but it did not recommend substantially altering the elements of cash compensation on which this report focuses.