Advocates do the math and get different answers

[thedrifter]

Advocates do the math and get different answers
Bigger raises still needed, MOAA rep says
By William H. McMichael - bmcmichael@militarytimes.com
Posted : July 16, 2007

Despite the findings of a new Congressional Budget Office study of military compensation, the “pay gap” between average military and private-sector wages has not yet been closed, an advocate for retirees says.

The CBO study, published in late June, concluded that, contrary to previous studies, the pay gap has been overcome by a long string of pay raises that began in 1980. The finding provides fuel for the Bush administration’s contention that its proposed 3 percent pay raise for 2008 is adequate and that Congress’ push to beef that up is unnecessary.

But according to the Defense Department’s 1982 comparability standard — 1982 being the last year it was generally agreed that rough parity existed between military and private-sector wages — a 4 percent pay gap still exists, according to Steve Strobridge, spokesman for the Military Officers Association of America.

“We’re not comfortable with saying, ‘OK, close enough,’” Strobridge said.

Strobridge calculates the gap by comparing compounded increases in the Labor Department’s Employment Cost Index to the compounded military raises from 1982 through 2007. Making up the difference, he said, would require an additional 4 percent raise, on top of the 3 percent the administration proposes, in 2008.

No one’s proposing that sort of increase. Both the House and Senate are calling for a 3.5 percent raise for next year. In addition, the House wants to peg military base pay to changes in the ECI, plus 0.5 percent, for the next five years, in order to continue closing the pay gap.

According to 2002’s 9th Quadrennial Review of Military Compensation, overall regular military compensation — the sum of all cash earnings plus the tax benefit of non-taxable allowances — should equal that of at least the 70th percentile of civilians with some college education, meaning that service members should make more than 70 percent of their civilian peers. The figure was chosen because the study group found that, based on historical data, the military did not have recruiting or retention problems when pay was at this level.

In its new study, CBO found that in 2006, compensation for the average enlisted service member actually topped the 75th percentile, when cash allowances and federal tax advantages are included.

“CBO’s analysis suggests that the goal has been achieved,” the report states.

While Strobridge agrees with the Pentagon’s use of ECI to calculate base pay increases — a calculus stamped into permanent law since 2004 — he says the Defense Department’s primary base pay assumption — the 70th percentile — is too opaque.

“How did you calculate the 70th percentile?” he asked. “I want a transparent standard.”

Joe Barnes, spokesman for the Fleet Reserve Association, says he thinks the current base pay index works.

“We agree, the 70th percentile is a reasonable benchmark,” he said. “But it becomes challenging when you look at military service compared to civilian specialties. Military service is much different than working in the civilian world. The approach must take that into account.”

The data in the CBO study, Barnes said, “is a useful reference. But the value of the service is really significant.”
A unique lifestyle

CBO acknowledges that pay comparisons do not take into account the difficulties of military life, such as combat and long family separations. It also notes that those features “require a compensation package that is distinctly different from civilian systems.” But it doesn’t suggest how to calculate the difficulties of military life, saying only that the topic “is the subject of extensive research and debate.”

Barnes favors more targeted pay raises, such as the series of increases begun in 2002 and concluded in April that boosted pay for midgrade noncommissioned officers and most warrant officers, an effort aimed at meeting the 70th percentile.

“The right direction,” Barnes said, but added: “We contend that there’s still about a 4 percent gap. We still need more targeting.”

That probably won’t happen anytime soon. Pentagon officials say basic pay is right where they want it.

No Defense Department official agreed to comment on the CBO report. But administration budget officials say President Bush “strongly opposes” efforts in Congress to boost the size of his proposed military pay raises, calling it “unnecessary.”

And on May 24, Defense Secretary Robert Gates said there are “competing interests” for defense dollars, citing the coming purchase of more than 20,000 Mine Resistant Ambush Protected vehicles for the Army and Marine Corps. Gates said a 3 percent raise is “about the right number” and “a fair increase in compensation.”

But today’s recruiting and retention market is a tough one, Barnes said, pointing out that the Navy is boosting the number of recruiters on the street even in the midst of a drawdown.

“The propensity of young folks to join is really low,” Barnes said. “Those that are coming forward are not looking at their tax advantages. They’re looking at their pay.”

Staff writer Rick Maze contributed to this report.

Ellie

[thedrifter]

A fresh look at pay
A new report says you make twice what you thought
By Rick Maze - rmaze@militarytimes.com
Posted : July 16, 2007

A new congressional report recommends a radical overhaul of military compensation. Neither service members nor the lawmakers and policymakers who decide pay levels understand the true value of cash compensation and noncash military benefits, according to the nonpartisan Congressional Budget Office in its report, “Evaluating Military Compensation,” released June 29. When noncash benefits are considered, the CBO says, the military’s compensation package is highly competitive with the private sector.

The problem, the authors argue, is that service members fixate on basic pay and housing allowances, but fail to factor in the value of benefits like family health care, discounted shopping and subsidized child care. Add to that deferred compensation, like retirement and veterans benefits, they say, and the value of members’ compensation is effectively doubled.

So when all that is taken into account, the authors say, the so-called pay gap between military and civilian wages disappears.

What may give the report extra weight is the fact well with senior defense officials and budget masters at the White House, who have argued that higher raises were “unnecessary.”

Instead, the CBO study argues that the value of military compensation needs to be made “more visible to service members and decision makers” and offers three ways that can be achieved:

•Combine cash benefits — basic pay and housing and food allowances — into a single payment. The total would rise each year to match private-sector wage increases, holding down annual increases if growth in housing and food costs outstrip average private-sector pay increases, the CBO says. Left unsaid is whether the service members’ tax advantage — housing and food allowances are not currently taxable — would disappear in the process.

•Eliminate differences in housing allowances for single people and those with families. Long favored by single troops, this idea was also suggested by a compensation advisory panel formed in 2005 by former Defense Secretary Donald Rumsfeld. It would not save money in the short run, as the least divisive way to make that change would be to increase pay for single members to match that of married members. But in the long run, CBO says, paying single and married people the same could save money by encouraging more single people to join the military and by eliminating a significant incentive for them to marry.

•Shift to a cafeteria-style plan for benefits. Troops would be assigned a certain amount of money they could use to “buy back” the fringe benefits they want most, such as family health benefits, subsidized child care or commissary shopping privileges. This idea, which CBO has advocated for years, would actually reduce benefits, because the allowance would not cover everything now available for every service member.

The CBO has made these suggestions before in previous reports, including its annual report on potential ways to reduce federal spending. But the most lasting impact of this report could be its assessment of the pay gap and its argument against larger-than-civilian-sector raises.

Lawmakers working on the 2008 defense authorization bill tentatively have agreed on a 3.5 percent all-ranks raise in basic pay effective Jan. 1, slightly more than the 3 percent requested by the Bush administration and enough to shave 0.5 percent off the estimated 3.9 percent gap between military and private-sector wages.

To further reduce the gap, the House of Representatives has proposed continuing to provide annual military raises through January 2011 that are 0.5 percentage points bigger than average private-sector pay hikes.

The gap is measured by comparing the growth in military and private sector pay since 1982, the second year of double-digit military pay raises designed to bring military pay to parity with civilian compensation.

But the CBO report says the gap is a myth perpetuated by a system that focuses only on basic pay, which by its calculations accounts for a third or less of a service member’s compensation.

Matthew Goldberg, one of the CBO analysts who worked on the report said a pay comparison focusing only on basic pay ignores the fact that the military “is much richer in benefits” than the private sector.

When total military pay and benefits — including pay and allowances, deferred benefits such as retired pay and veterans benefits, and noncash benefits such as health care and subsidized shopping and child care — are counted, service members make almost twice as much and have seen an overall 21 percent increase in compensation since 2000, CBO says.

That figure could be even higher: Bonus payments and combat-related allowances have also increased dramatically in the same period. The report does not address this fact.

Another point the report seems to ignore is how few troops actually remain in the military until retirement. The report calculates the value of retired pay and retiree health care benefits total 17 percent to 22 percent of an average enlisted member’s compensation. In fact, that deferred compensation will be of no value to the more than 80 percent of enlisted members who don’t earn military retirement.

The report was done at the request of the Senate Budget Committee, which specifically asked for a comparison of civilian wages and the pay of military enlisted personnel — 83 percent of the force, said CBO Director Peter Orszag.
Top 30 percent

The report’s conclusions about the pay gap track with what the Pentagon has been saying for years. Defense officials set a goal of placing military pay at the 70th percentile of civilians with similar education and experience — meaning troops would be compensated better than 70 percent of their civilian peers.

Goldberg said that standard was met last year, when, in fact, pay for most military paygrades reached the 75th percentile.

Military payroll costs have become a major budget issue, with defense and service officials warning that mushrooming pay and benefits for active, reserve and retired personnel and their family members have reached the point where they are squeezing weapons modernization projects.

CBO says enlisted personnel make about twice as much as they think because of noncash benefits.

The same point has been made by budget-conscious lawmakers since the start of the all-volunteer force in 1973, and is one reason why troops get an annual statement showing the total value of their military pay and benefits, including a list of fringe benefits — which they may or may not use.

Along with disputing the existence of the pay gap, the CBO report also says the custom of linking annual military raises to the Employment Cost Index, a measure of average private-sector raises calculated by the Labor Department’s Bureau of Labor Statistics, is flawed.

Troops generally are younger and less educated than the average workers measured by the index, CBO says, which renders inaccurate any comparisons of military pay using the ECI.

The report is online at www.marinecorpstimes.com/money.

Ellie