Military and Civilian Pay Comparisons Present Challenges and Are One of Many Tools in Assessing Compensation
GAO-10-561R, Apr 1, 2010
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The Department of Defense's (DOD) military compensation package, which is a myriad of pays and benefits, is an important tool to attract and retain the number and quality of active duty servicemembers it needs to fulfill its mission. Compensation can be appropriate and adequate to attract and retain servicemembers when it is competitive with civilian compensation. However, comparisons between military and civilian compensation present both limitations and challenges. As we noted in 1986, exact compensation comparisons are not possible because no data exist which would allow an exact comparison of military and civilian personnel with the same levels of work experience. Also, nonmonetary considerations complicate military and civilian pay comparisons because their value cannot be quantified. Specifically, military service is unique in that the working conditions for active duty service carry the risk of death and injury during wartime and the potential for frequent, long deployments unlike most civilian jobs. The National Defense Authorization Act for Fiscal Year 2010 required that we conduct a study comparing pay and benefits provided by law to members of the Armed Forces with that of comparably situated private-sector employees to assess how the differences in pay and benefits affect recruiting and retention of members of the Armed Forces. Specifically, our objectives were to (1) assess total military compensation for active duty officers and for enlisted personnel; (2) compare private-sector pay and benefits for civilians of similar age, education, and experience with similar job responsibilities and working conditions of officers and enlisted personnel of the Armed Forces; and (3) assess the 10th Quadrennial Review of Military Compensation (QRMC) recommendation to include regular military compensation and select benefits when comparing military and civilian compensation to ascertain if it is appropriate. The focus of this review was active duty servicemembers' perspectives on compensation. That is, we focused on cash compensation and the value of benefits to servicemembers versus the cost to the government of providing compensation.
DOD provides active duty personnel with a comprehensive compensation package that includes a mix of cash, such as basic pay; noncash benefits, like health care; and deferred compensation, such as retirement pension; however, most studies that have examined the value of military compensation to servicemembers do not assess all components of the compensation package. While a number of organizations, including Congressional Budget Office (CBO), RAND Corporation (RAND), and CNA Corporation (CNA), have assessed military compensation using varying approaches, all of the studies include some components of compensation--for example, cash compensation beyond basic pay to include housing and subsistence allowances, the federal income tax advantage, and, when possible, special and incentive pay. The most recent study, a 2008 DOD-sponsored study-- completed by CNA--assessed military compensation using regular military compensation and some benefits (specifically health care, the military tax advantage, and retirement benefits). In particular, the results of this study state that in 2006, average enlisted servicemembers' compensation ranged from approximately $40,000 at 1 year of service to approximately $80,000 at 20 years of service. Additionally, in 2006 the average officers' compensation ranged from approximately $50,000 at 1 year of service to approximately $140,000 for 20 years of service. Our analysis of CNA's 2008 study on military compensation found that overall CNA used a reasonable approach to assessing military compensation. In general, we agree that when assessing military compensation for the purpose of comparing it to civilian compensation, it is appropriate to include regular military compensation and benefits (as many as can be reasonably valued from the servicemembers' perspective). However, we identified two areas for comment with CNA's approach. First, CNA's methodology for calculating a value for retirement, health care, and tax advantage makes various assumptions that allow the study to approximate a value for these benefits. While the assumptions are reasonable, we note that other, alternate assumptions could have been made. Thus, a different assessment of military compensation could make different assumptions and generate, in some cases, substantially different values. Second, the study omits the value of retiree health care, which is a significant benefit provided to servicemembers. This study and others of military compensation illustrate that valuing total military compensation from a servicemember's perspective is challenging given, among other reasons, the variability across the large number of pays and benefits, the need to make certain assumptions to estimate the value of various benefits, and the utilization of benefits by servicemembers or their dependents.