Troops and Contractors: Compensation Comparison

Everyone who deals with hiring employees knows that the actual cost of an employee is much more than that worker’s base salary. The latest issue of Serviam Magazine, a sort of trade mag for the private security contractor sector, runs this article:

Just How Overpaid are Private Security Contractors?

A base pay of $165,000 per year is a lot of money for most people, especially to a soldier. It’s no wonder that some military professionals aspire to become highly paid private security contractors (PSCs), and that others will simply resent them for earning these high wages.

Compared with the basic pay of an active duty E-6 staff sergeant with 10 years of service, the cash compensation of a top-end PSC is a small fortune. Some critics are outraged that a high-end contractor is paid nearly five times as much as that of an E-6. The contracting system, they say, is unfair to the troops and is a rip-off of the taxpayer. For every one contractor, the reasoning goes, the U.S. could pay for five staff sergeants.

That might make sense if the compensation systems were similar. But they aren’t.

Keep in mind that the magazine is a vocally pro-PSC publication, but take a look at the numbers and let me know what you think.

Here is a table showing what they’re talking about:

Click for a larger view. One major question I have is about “Health Care”. My understand of the military health care system is limited, and I know next to nothing about how the US government actually pays private security contractors for service or how the firms pay their employees. But I question the zero dollar amount listed as Noncash Benefits for contractor Health Care. If someone more knowledgeable could clear that up a bit I’d sure appreciate it.

Another thing about this comparison is that it is focused on the “take home” pay of a soldier vs. that of a contractor. That’s all well and good, but when discussing the role of private contractors working with/for the military, isn’t the actual cash cost to the government more important than the amount of cash that ends up in each individual’s pocket?

For all of those zeros listed under the contractor’s take home, you know that there are some hefty non-zero costs that the government ends up covering. How many and how much, I can’t even begin to guess.

So while I’m sure that the actual cost to the government isn’t as lopsided as is generally presented by critics, I’m also pretty sure that private contractors aren’t quite the bargain this table makes them out to be.

I’d sure love to hear from those who know more about this. If you have some info that you’d rather not have published, drop me an email. Or, as usual, feel free to post comments here on the post.

Contractors are a major issue these days, and not just because of the sensationalized stories about trigger crazy loose cannons shooting up the neighborhood. It would be refreshing to have a fair, rational look at the topic so some good decisions can be made. I’m not holding my breath.

Comments

  1. How do you ‘overpay’ a soldier to lay down his life to protect yours and those of your family? The issue isn’t one of pay as much as it is one of loyalty. We have always been defended by great soldiers because we were defended by great patriots. Now we’re paying foreign mercinaries to defend our interests. How cost effective is that? And yet, our politicians would rely more on foreign sources rather than less. They outsource our defense hardware, our soldiers, our intelligence. It is like we has a nation have ceased to have the will to survive. We do things that are so fundamentally flawed, so obviously stupid, that it defies all logic. We pay contractors more to screw us than to provide us weapons and that makes sense. We pay contractors more to keep a war going than to end it and that makes sense. We pay foreign countries that hate us to feed, clothe, and provide the energy to keep us warm and that makes sense. What doesn’t make sense seems to be doing anything that would actually be in our own best interest.

  2. You hit the nail on the head with some of your reservations and I think your conclusion was right on the money (pun intended) as well. The things that jumped out to me immediately and warranted a little research were the reenlistment bonus and special pay numbers on the military side. After looking into it, they assume the maximum for both. Very few people…even special ops guys…are going to qualify for the max in either category. Those are inflated. They assume that the service member is married hence adding BAS and BAQ as well as Rations in Kind and ‘Family housing and barracks’. Many if not most probably are married, but definitely not all. That should be adjusted down to reflect an average. Some of the ‘non-cash and deferred’ benefits are to fixed amounts as well and they seem to have assumed the maximum for all of them. Very few will actually realize the maximum of any of those benefits, let alone all of them. On the contractor side, they assume that the contractor’s employers don’t offer ANY benefits above base pay? That’s a bit hard to swallow considering the employment environment these days. I checked Blackwater USA’s website (there are some non-combat job openings by the way) but they don’t mention compensation or benefits. Those are probably subject to negotiation upon an offer of employment. Where the heck did they come up with the $69,300 federal tax due? That would be a tax rate of 42%. According to the 2007 tax rate schedule from the IRS, the HIGHEST tax rate for that income (married filing separately) would result in a tax liability of $44,050. The lowest (married filing jointly) would result in a tax liability of $35,193. That is assuming that their actual pay is their federal taxable income. No charitable donations, no mortgage interest, no retirement account deposits, no pre-tax medical account deposits, no medical expenses. Not bloody likely. Looking at it from the standpoint of the service member and whether staying in or getting out and hiring on as a contractor is most beneficial to them: I would say that the contractor route probably looks pretty tempting…that’s the perspective I think the article was taking…but much can be said for doing your 20 years, retiring at 37 or 38 with a small pension, medical benefits and commissary privileges for life, and then signing on as a contractor for a healthy pay increase. Looking at it from the taxpayer’s perspective, I think your analysis was spot on. The truth lies somewhere in the middle between the anti-contractor and pro-contractor arguments.

  3. Dfens, A contracting firm doesn’t necessarily operate by a mercenary ethic. Blackwater, for example, won’t deal with foreign powers the way the former Executive Outcomes did. And even if they did, it wouldn’t have to be a bad thing *if* the local talent was lacking. In our case, we have 300 million people. We can field all the talented, bright soldiers we want to. It’s just that for a variety of social and economic reasons we don’t want to make that many. But hey, why be so down on true mercenaries in the first place? We’ve done some pretty good things thanks to men like von Steuben and Pulaski.

  4. I’m not sure how accurate those numbers are, but they’re not too far off from what I see in the civilian world. They probably did cherry pick the worst case (best case?) service member numbers. But they seem believable to me. I just went through a similar calculation this week with an engineer I am hiring. We’re offering him the option of a salary of $80k per year as a full time employee with benefits, or $120k per year as a contractor with no benefits. The net cost to us is almost identical with either pay scale. I just ran the numbers yesterday, and I can dig them up and break them out if anyone is interested. And as far as the federal taxes go, private contractors are responsible for paying the full 15.2% Social Security/Medicare ‘tax’, where as employers are responsible for paying half of that tax for their employees. And if you add 15.2% of $165k to the $44,k tax number mentioned above, it comes out close to $69k total, so maybe that’s where that number came from.

  5. jaymaster, ‘…a salary of $80k per year as a full time employee with benefits, or $120k per year as a contractor with no benefits. The net cost to us is almost identical…’ I think that’s the standard. I work for a non-profit, and have been on a few hiring cmtes this year. I was a little surprised- only a little- to learn that all institutional benefits are about half of the offered salary. There can be exceptions, surely, but it’s a figure to plan with.

  6. Typo alert: ‘Some of the ‘non-cash and deferred’ benefits are to fixed amounts as well’ Should have read: ‘Some of the ‘non-cash and deferred’ benefits are NON fixed amounts as well’ Sorry, I was in a hurry. The ‘contractors’ are generally employed by companies like Blackwater…they aren’t independent contractors that are considered self employed. I work for a government contractor, that doesn’t make me self-employed and my company pays ‘their’ share of my FICA and Medicare taxes and standard benefits are part of my compensation. When I’m on base, the service members call me a ‘contractor’ but that doesn’t mean I’m self employed. The same situation exists with the ‘contractors’ in the case of Blackwater et al… With that said: Jaymaster brought up a good point about FICA (and would also include Medicare tax). That got me thinking about whether they included those items in the military member’s federal tax liability (which would indicate that they included them in the contractor’s numbers as well). Back to the tax tables I went. Using the same assumptions they made with the contractor (namely that they had no deductions to reduce their federal taxable income), the only things in the ‘cash compensation’ category that aren’t taxable are BAH and BAS. Subtracting those, the taxable compensation for the soldier comes to $59,807. According to the tax tables, the minimum tax liability (married filing joint) would be $8,188. I would say that they may have considered the fact that those in the war zone don’t pay income taxes on their base pay and some special pays, but they put in italics at the bottom ‘Federal tax advantage (not included)’ which leads me to believe that they were saying that they weren’t going to count that in the calculations. Basically, it looks to me like they weren’t counting FICA and Medicare taxes…and they grossly underestimated the tax liability of the Solder in conjunction with grossly overestimating that of the contractor. Any way you cut it, their numbers are flawed.

  7. Now we’re paying foreign mercinaries to defend our interests. How cost effective is that? Actually, if that were the case (and it typically is not), it would be VERY cost effective. The problem is that the contractors are paying enough to entice AMERICAN soldiers to get out of the military and go to work with the contractors. Do you have any idea how much it costs to train and equip a Soldier from the ground up to the 10 year E-6 level that they used as their service member example? Especially a Spec Ops soldier. We’re talking millions here. Per soldier. When they leave the military and go to a contractor, not only have we already paid for their training, but now we are paying a contractor for the privilege of taking advantage of that training THAT WE PAID FOR. Now, if the costs work out anywhere near the same, it makes no real difference whether those costs are associated with the care and feeding of a US Enlistee, or paying a contractor. What about foreign ‘mercenaries?’ Who paid for their training and experience? Whatever country they came from. Therefore, if we can pay a Frenchman, or German, or Brit the same amount of money it would cost to maintain a US soldier, we are way ahead because we are paying them to utilize training and experience that they got AT SOMEONE ELSE’S EXPENSE. Sounds pretty cost effective to me. This made me think of another monetary consideration that they didn’t account for (at least from the taxpayer’s perspective): Contractors provide their own weapons, vehicles, uniforms, personnel protective equipment etc. That is a part of the cost of upkeep for a typical soldier that has to be considered into the overall cost/benefit equation.

  8. Good points Murdoc and SC; my last employer provided my health care in country by US licensed EMTs. I never had any illneses or conditions other than a cold and a couple bouts of diarrhea, which were effectively attended to. My health care was also company provided, and was configured around a per person/total per year deductable then basically was an 80/20 split after that between them and me. On the other hand…………..it didn’t make any difference if I was off sick for the flu, or had been shot or blown up on assignment………..the company cut our wages off for every day off work (I could see not being paid for being ‘sick’, but the other should have been handled as any workman’s comp issue, in my book)! I agree with SC on his comments about the taxes being payed by the ‘contractor’ in the comparo………..I think he needs a better accountant! LOL!

  9. Um…I was answering the specific question that is in italics at the top of the comment. How does a question about cost effectiveness have anything to do with loyalty? I’m glad we DON’T generally hire foreign contractors for that kind of work specifically because of that issue…I was just explaining why it would be cost effective if we did…you know…answering the question and all…

  10. Just because someone is discussing the economic value of something doesn’t mean that that’s the only factor that matters. It just happens to be the factor that we’re discussing here.

  11. When we pay contractors for that service, especially when we pay foreign contractors, we are spitting on the service of true patriots. That’s the real issue. You can’t hang a dollar amount on that. Yet for hundreds of years our nation not only survived but thrived because of the service of patriots in the Army, Navy, Marines, and Air Force. To reduce that to a paycheck is damn disrespectful in my not so humble opinion. Ironiclly, in the end, loyalty is the only thing that makes ‘fiscal sense’. If you’re raising a mercinary army that’s not loyal, you’re doing nothing but arming a potential enemy. How much ‘fiscal sense’ does that make? How much ‘fiscal sense’ does it make to incentivize a contractor to not look out for your interests in a theater of war? It doesn’t make any at all. Why would I waste my time analyzing whether or not they used the appropriate deduction schedules and rates when the whole notion is fundamentally idiotic, fiscally? We are spending as much money for the defense of this country as we were during the Cold War and getting crap for it. Our Air Force is full of aircraft that are falling out of the sky for fatigue. Our Navy is sinking. Our Army is stretched to its limit in 2 third world puke holes. Are you saying that makes ‘fiscal sense’? I think you’re missing the forest for the trees.

  12. When we pay contractors for that service, especially when we pay foreign contractors, we are spitting on the service of true patriots. First of all, the contractors in question are NOT the foreign mercenaries that you seem to be obsessing about. Blackwater employees are almost exclusively ex-US military types and many are special forces. Secondly, we are NOT hiring the contractors to do battle for us, we are hiring them to pull security and guard details. I don’t know what your military experience is but those were duties which were not exactly…um…enthusiastically embraced…by the troops during my 21 years of active service. I haven’t heard the opinions of the troops on the ground about this but I would imagine that they would be glad to be relieved of these more mundane duties so they can actually do what they signed up to do…namely, fight for their country. I simply cannot conceive of how that is ‘spitting on’ the patriots that have volunteered to serve. What about the recent practice of hiring civilian contractors for food services. I mean, peeling potatoes and washing dishes is a traditional job in the military, is it spitting on the troops to relieve them of those duties by hiring civilians? Thats just ridiculous. We are spending as much money for the defense of this country as we were during the Cold War and getting crap for it. Our Air Force is full of aircraft that are falling out of the sky for fatigue. Our Navy is sinking. Our Army is stretched to its limit in 2 third world puke holes. Are you saying that makes ‘fiscal sense’? I think you’re missing the forest for the trees. Excuse me??? I’ll bite: Sources, cites, facts, figures please. As someone who retired from the military after 21 years of service and who works with the military on a daily basis, you are describing a military with which I am unfamiliar. Perhaps you are mistaking the US military for that of the Soviet Union?

  13. There are now more private contractors working in Iraq than U.S. soldiers serving there. Many are not U.S. citizens. Triple Canopy, another private firm, usually hires Peruvians to man the checkpoints inside the International Zone and Ugandans to guard distant airbases. The Peruvians, known as ‘incas’ among Americans there, usually do not speak English or Arabic–a persistent source of complaint by Iraqi politicians who speak one or both languages. – quoted here earlier

    Maybe you could point me to the ‘front lines’ in Iraq. They don’t seem to be showing up on any maps. As for our military going to hell, maybe you’ve heard of the grounded F-15s, or the nearly grounded KC-135, or the grounded C-130E, or the C-5 that’s got a 50% availability rate. If the Navy is your thing, perhaps you remember the 700 ship Navy under Reagan rather than the 280 ship Navy under Bush. Maybe you don’t consider an Army that has more contractors than US soldiers in Iraq to be ‘over stretched’ but it’s funny how they themselves have admitted to needing more men. I guess it’s all in the spin, right?

  14. Well, perhaps I was wrong about who the contractors are hiring. Point scored. However I was not wrong about the capacity in which they are serving and I still just don’t see how it is ‘spitting on’ our service members to relieve them of the mundane duties that they’d rather not do anyway. Have I heard the ‘stories’ about grounded F-15’s and such? Sure I have, and having seen first hand the daily operation of the military, I can tell you first hand that, for the most part, that’s all they are: stories. Those stories are instigated and promulgated by a media who loves nothing more than a good military-bashing. Are their problems? Do we have older aircraft that need to be replaced? Is Congress doing the best job they can to provide the best equipment possible for the air force? Absolutely not. But that doesn’t support your ‘falling out of the sky’ charge in the least. The Air Force mishap rate is comparable to other services and has been fairly constant around 1.5 per 100,000 flight hours since the mid 90’s…after decades of steady decline. I realize that report is from 1997, so for something a bit more recent‘The FY05 Class A mishap rate was 1.49.’ Yes, the Navy has less ships than it did during the height of the cold war, that hardly proves (or even supports) your contention that ‘Our Navy is sinking.’ Capabilities of Naval fighting forces have increased exponentially since the cold war. Should we have kept WWII era clunker boats on the rolls just so we can say we have XXX number of ships? The ships we have are newer, more powerful, faster, more capable and more comfortable for the crews than we had in the 70’s and 80’s. Would more be better? Sure, but that doesn’t mean that the ones we have are ‘sinking.’ Our military is indeed smaller, but it is better trained, better equipped and more effective than ever. Would I support a military expansion? You bet your butt I would. I think we need to have more soldiers, more planes, more ships…and newer, better, faster ones at that…but your contention that our military is falling apart is complete rubbish and THAT, in my humble opinion, is ‘spitting’ on our patriots in uniform. Since the First Bush administration, the mantra throughout the military has been ‘do more with less.’ Our fighting men and women have lived up to that challenge and have built, through their own effort, blood, sweat and tears, the best and most effective military force that the world has ever seen. To denigrate them by insinuating anything else is an insult.

  15. The reason the F-15s are grounded is literally because they are falling out of the sky. One collapsed during a training flight, but I believe the pilot was able to successfully eject. Then they started inspecting the airplanes for cracks. At first they didn’t find anything and decided to let them fly, then they found fatigue cracks in the upper longerons. Which part of that process is unpatriotic? As for the KC-135, C-130, and P-3, it is well known that those airplanes are all well past their designed fatigue life. Most are flying with severe limitations on the loads they can carry and maneuvers they can perform. Now which part of that reality is unpatriotic? Meanwhile the F-22 took 25 years or more to develop while it only took 12 to develop the similarly stealthy and much larger B-2. Is it unpatriotic to think that’s a bunch of crap, because that’s exactly what I believe. You know, having worked on F-22 and heard over and over again on that program how much smarter we were going to be on F-22 and how costs weren’t going to get away from us like they did on B-2. That’s real damn funny now, but they were serious when they said it back then. Not surprisingly, the B-2 cost half as much to develop as the F-22 too. I suppose it’s unpatriotic to notice such things, though. No, it would be much more patriotic if I wrapped myself in the flag and led everyone down the primrose path. Maybe I could do the Neidermeyer thing and tell everyone to ‘remain calm, all is well’ as it all goes to hell in a handbasket. Yeah, we’d all be much better off if we’d all learn to take it up the ass and enjoy it. After all, that’s the very definition of ‘patriotism’, isn’t it?