The popular belief that there is a huge disparity between what U.S. private security contractors and military personnel are paid has been exposed as a myth yet again.
Earlier this month the Pentagon released its Tenth Quadrennial Review of Military Compensation. The findings confirm that U.S. forces’ pay rates are competitive. Military personnel are in the top 20 percent for pay when compared with their civilian peers in age and education.
Even when compared with their counterparts in the private military contractor field, U.S. military personnel actually do better, once non‐cash benefits are taken into account, according to an analysis by industry publication Serviam.
An active‐duty sergeant (or E-6 in military terminology) has an annual base pay of $33,976 plus allowances for housing and subsistence, for a total of $44,863. Adding special duty pay, a re‐enlistment bonus aggregated over four years, and other allowances, minus federal taxes, the total net cash compensation comes to $63,340 a year.
That may not seem like much when compared with a similarly qualified military contractor, whose average base pay is $165,000. But the PMC receives no other benefits.
Because he is rotated in and out of Iraq every 90 days, he cannot claim the income tax exemptions that he could if he was stationed abroad for a full tax year. In his high tax bracket, he must pay $69,300 in federal taxes — more than 50 times what the sergeant must pay.
But that still leaves the contractor with a net cash compensation of $95,700, or about 38 percent more than the sergeant.
However, the picture changes once non‐cash benefits such as healthcare, installation‐based benefits, subsistence in kind, family housing and barracks, education and other benefits are taken into account. For the sergeant, these benefits can total $22,765 a year. The sergeant is also entitled to retirement pay accrual, compensation from the Department of Veterans Affairs, pension, healthcare and related health benefits, amounting to an average of $34,269 per year in deferred benefits. That means total compensation for the sergeant, after taxes and including non‐cash benefits, can be up to $126,734.
His PMC equivalent receives none of the non‐cash benefits or deferred benefits of the sergeant. So now the tables are turned: $126,734 in total compensation for the sergeant, and $95,700 for the contractor.
But wait — there’s more. If the contractor wants the non‐cash and deferred benefits such as healthcare, housing and retirement contributions, he must pay out of his pocket. His $95,700 take‐home pay, minus the equivalent $22,765 in non‐cash benefits and the $34,629 in deferred benefits, leaves him with a net cash compensation equivalent of a paltry $38,306.
By contrast, the staff sergeant walks away with a net cash contribution of $69,340.
However, all of that is not to say there isn’t a pay gap. It’s just that critics tend to focus on the wrong group of people.
One reason PMCs make big profits is that they can operate on the theory of comparative advantage. In other words, as the economist David Ricardo formulated it, a disadvantaged country can benefit from specializing in and exporting the product(s) for which it has the lowest opportunity cost of production.
In the case of PMCs, the product is contractors from other countries who will work at far lower wages than Americans.
Now there is nothing illegal or unethical about this. It is just the way things work in our globalized world. Still, some people wonder why people who face equal risk often don’t get equal pay.
PMCs employ personnel from numerous countries. Contractors, to name a few, hail from Britain, Nepal, Chile, Ukraine, Israel, South Africa and Fiji, not to mention former French Foreign Legionnaires.
Throughout Latin America there have been numerous reports of contracting and subcontracting firms recruiting in Chile, Colombia, Nicaragua, Guatemala and El Salvador. These countries have had recent — and in Colombia’s case, ongoing — wars, which make for large pools of experienced and inexpensive ex‐military and policemen.
In 2005 Jeffrey Shippy, who used to work for DynCorp, advertised on an Iraq jobs Web site, “For hire: more than 1,000 U.S.-trained former soldiers and police officers from Colombia. Combat‐hardened, experienced in fighting insurgents and ready for duty in Iraq.” Shippy said the Colombians were willing to work for $2,500 to $5,000 a month, compared with perhaps $10,000 or more for Americans.
In May 2005 Honduras’ Labor Ministry announced an offer it had been asked to relay from U.S. firm Triple Canopy willing to pay comparatively high salaries, compared with what was available in Honduran society, to recruit 2,000 Hondurans to work as security guards in Iraq and Afghanistan.
While the morality of such recruiting is often debated, the economics are clear‐cut, as Geoff Thale of the Washington Office on Latin America said in an interview.
“It’s sort of the overall point here is that in Latin America and elsewhere in Third World countries, you can make four or five times working as the cook in a mess hall or the security guard for an embassy or the security for truck convoy delivering supplies, you can make four or five times there what you can make in your home country. In Salvador, as a matter of fact, people are quitting military jobs, jobs in the Salvadoran armed forces to line up for and volunteer for the jobs with private security firms, because they will make four or five times what they earn, and on the flip side, the U.S. companies involved in recruiting are going to pay them one‐quarter of what they would have to pay if they were recruiting a U.S. citizen to do this work. So there’s a market logic.”