Analysis of Federal Civilian and Military Compensation

January 20, 2011

To attract and retain the personnel it needs, the federal government must offer competitive compensation packages. For the military to recruit and retain qualified personnel, the compensation system must adequately reward service members for their training and skills as well as for the rigors of military life, particularly the prospect of wartime deployment. Federal agencies must also offer civilian employees a compensation package that will attract talented people to federal service and encourage the most highly skilled to remain, in the face of competing opportunities in the private sector.

However, the relationship between specific changes in pay rates and benefits and the effect on recruiting and retention is not always clear: changes in hiring and retention may be too gradual or too ambiguous and a variety of factorsincluding economic conditionsmay affect an employers ability to attract and retain personnel. Consequently, employers often try to peg the cash compensation of their employees to that of some external benchmark group.

In response to a request from the House Democratic Whip, CBO prepared an analysis comparing federal civilian and military compensation. Total compensation can be divided into three components: cash compensation (including pay, cash allowances, and bonuses); noncash benefits (such as subsidized health insurance and child care); and deferred benefits (such as pensions and veterans benefits.) Because of the difficulties of estimating the relative size of noncash and deferred compensation, for this analysis CBO focused on cash compensation, addressing how salaries earned by federal civilian workers compare with cash compensation for military personnel.

According to CBOs analysis, median cash compensation for military personnelincluding the tax-free cash allowances for food and housingexceeds the salaries of most federal civilians with comparable education and work experience. (Researchers often use the median, instead of the more common mean, or average, when working with earnings data. If earnings are ranked from lowest to highest, the medianor 50th percentiledivides the distribution in half.) In addition, according to prior studies, noncash and deferred benefits are also higher for military personnel than for federal civilian workers.

That simple comparison is limited, however, because it cannot entirely account for differences in the mix of occupations between military personnel and civilians. It also cannot accurately quantify differences in the intangible elements of a job or a compensation package. For example, military personnel may be separated from their families for extended periods of time or work longer hours or in more hazardous conditions than civilians do. Incorporating those differences between federal civilian and military jobs is extremely difficult. Moreover, measuring the comparability in pay does not indicate whether the government is paying too much or too little for either military or civilian personnel. Recruiting and retention are better gauges of this, although their relationship to compensation may be difficult to measure.

This analysis was prepared by Carla Tighe Murray of CBOs National Security Division and Justin Falk of CBO's Microeconomic Studies Division.