Understanding Military Compensation

Five Components of Military Pay

While serving in the military, there are several factors that determine how much a service member is paid.  Knowing how military pay structure works can help private sector employers to understand the salary expectations of Veteran job applicants, and to tailor their compensation offerings to better attract Veteran talent. Below we break down the most important aspects of the military pay system for employers and HR professionals to understand.

  1. Basic Pay

Basic Pay is the fundamental component of military pay, and it usually comprises the largest portion of a member's pay. A member's basic pay is determined by their Pay Grade.  Pay grades are similar to organizational pay bands, and are based on a combination of an individual’s rank and their time in service. While a Veteran’s title or rank may differ from branch to branch, all branches use uniform, equivalent pay grades to allow for seniority among a group of members from different services to be easily determined. Annual pay raises linked to increases in private sector wages and based on the Employment Cost Index (ECI) is also included in this pay type. Pay grade lists are published annually on the government’s Military Pay Charts website.

  1. Allowances

In addition to a service member’s basic pay, allowances make up the second most important element of military compensation. Allowances are moneys provided for specific needs, such as food or housing, and are provided when the government does not provide for that specific need. Government-owned housing, for example, does not have enough space to house all military members and their families. Those who do not live in government housing receive allowances to assist them in obtaining commercial housing. The most common allowances are Basic Allowance for Subsistence (BAS) and Basic Allowance for Housing (BAH). Most members receive both allowances, with allowances making up a significant portion of their total pay. Additionally, allowances are usually not taxable, making them even more beneficial forms of compensation.  As most employers do not pay for housing, this amount is generally not included in salary discussions with Veterans.  Being familiar with this allowance helps employers discuss pay differences with Veteran candidates, and further shows your commitment to understanding and valuing services members in your organization.

  1. Medical Insurance

During military service, Veterans have medical and supplemental insurance programs offered at little or no cost to them and their families.  Upon leaving military service, unless a Veteran has served at least 20 years in the military, they are no longer eligible for this benefit.  When transitioning to private sector employment, Veterans may be unfamiliar with private sector insurance plans, deductibles, and how to determine which plan is right for their family.  Employers who explain their medical programs and benefits to Veteran candidates further promote an organization’s overall compensation package that goes beyond take-home pay.

  1. Special and Incentive Pay

Special and Incentive (S&I) pay provides the uniformed services with flexible additional pay types that can be used to address specific manpower needs and other force management issues that cannot be efficiently addressed through basic pay increases. In 2008, the various S&I pay types were consolidated into eight broad categories instead of the 60+ types previously in use. The most commonly used types include Hardship Duty Pay (HDP), Hostile Fire Pay/Imminent Danger Pay (HFP/IDP), Assignment Incentive Pay (AIP), and Hazardous Duty Incentive Pay (HDIP). Use of each type is on an as-needed basis, and generally is not applicable for a member’s entire career.  Unless the prospective Veteran candidate works in a similar location or situation for your business, these compensation amounts are generally not included in an employer’s salary range.

  1. Retirement

Prior to 2018, military retirement was an ‘all or nothing’ system with service members becoming eligible for a traditional pension plan after 20 years of military service. As more than 80% of servicemen and women do not reach the 20 year mark, Congress approved a new retirement system to address retirement benefits for non-career service members. This new retirement offering, or ‘blended retirement,’ consists of a 401(k)-style plan which can be transferred if the member leaves the military, along with a continuation bonus after 12 years of service and eligibility for a traditional pension plan (although less generous than the previous one) after meeting the 20 year service requirement.

Understanding the elements that make up a Veteran’s military compensation package can help you determine which compensation options will appeal to military Veteran applicants. Ensuring that your company’s position descriptions are communicated in terms of job-specific responsibilities and required level of experience will also make it easier to determine Veteran employee expectations for career advancement and salary increases. If you would like to know more about how your company’s compensation policies differ from those of military pay, contact AVFE today.