Department of Defense Is Overcompensating Its Foreign Employees

FPCD-78-64: Published: Aug 2, 1978. Publicly Released: Aug 2, 1978.

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As of January 1, 1978, the Department of Defense (DOD) employed about 151,800 foreign nationals at foreign installations, including about 121,200 paid from appropriated funds. Almost 90 percent of the employees were located in five countries--Germany, Japan, Korea, the Philippines, and Italy. The Foreign Service Act provides that compensation for foreign national employees will be based on locally prevailing rates and practices consistent with the public interest.

Compensation adjustments for foreign national employees are generally determined by two methods: periodic wage surveys as in Korea, Italy, and the Philippines; and government-to-government negotiations as in Japan and Germany. To establish comparability with the private sector, DOD annually adjusts the value of regular pay items but considers and adjusts benefits separately. Combined analysis of pay and benefits would give DOD more flexibility to follow changes in private sector practices. DOD is restricted from paying prevailing rates because: (1) compensation under indirect hire systems is based on government-to-government negotiations rather than the more objective results of wage surveys; (2) outdated labor agreements contain concessions written when labor costs were relatively inexpensive; and (3) political sensitivities and/or influential labor unions limit opportunities for corrective action.

Recommendation for Executive Action

  1. Status: Closed

    Comments: Please call 202/512-6100 for additional information.

    Recommendation: DOD should: (1) combine pay and benefits when determining annual comparability adjustments; (2) determine whether GAO recommendations for wage survey improvements are applicable to other foreign areas and, in the future, monitor the wage setting process more closely to further improve and standardize wage survey procedures; (3) adopt separation pay liquidation plans in areas having separation plans similar to that of U.S. forces in Korea; (4) pursue labor cost sharing opportunities with host governments, particularly where DOD is unable to reduce excess labor costs by other means; (5) review existing foreign national labor agreements and initiate negotiations to revise those containing outdated or overly restrictive provisions; and (6) continue to explore ways of hiring more Americans.

    Agency Affected:


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