Analysis of Federal Civilian and Military Compensation

January 20, 2011

Letter to the Honorable Steny H. Hoyer

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, its 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.

Policymakers may be concerned about the ability of both the military and other federal agencies to recruit and retain high-quality personnel and about equity between those two compensation systems. The best barometer of the effectiveness of any compensation package may be how well the employer attracts and retains high-quality personnel. However, the relationship between specific changes in pay rates and benefits and the effect on recruiting and retention is not clear, and changes in hiring and retention may be too gradual or too ambiguous to guide all decisions about compensation. A variety of factors—including economic conditions—may significantly affect an employer’s ability to attract and retain personnel during a given period. Therefore, determining the appropriate compensation solely on the basis of recent patterns of hiring and retention is difficult at best. Because of those shortcomings, employers often try to peg the cash compensation of their employees to that of some external benchmark group.

CBO was asked to compare 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 CBO’s analysis, median cash compensation for military personnel—including the tax-free cash allowances for food and housing—exceeds the salaries of most federal civilians of comparable education and work experience. 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.