should add, Mr. Chairman, this figure can vary very widely from day to day.

By an amendment added to the bill on the House floor, this special pay would be retroactive to January 1, 1961.

"RESPONSIBILITY" PAY

H.R. 5555 would repeal existing permissive authority allowing extra pay to officers assigned to positions of "unusual responsibility and of a critical nature to the armed services concerned."

The Department of Defense recommends repeal of the authority for this special pay. It has never been implemented because the Department of Defense has considered that the utility and necessity of this special pay are open to serious question. Certain of the military services have favored this pay; others have been opposed. It has not been used, however, for the basic reason that this special pay is not equatable with the fundamental concept embodied in the present uniformed services pay system which relates pay to rank, and rank with responsibility. Apart from this matter of principle, administration of this provision in such a manner as to avoid serious problems of equity and morale would, in our judgment, be most difficult.

PROVISIONS AFFECTING RETIREMENT PAY

H.R. 5555 contains three major provisions affecting retirement pay for members of the uniformed services. In effect, these provisions would accomplish the following:

A. NEW METHOD FOR FUTURE ADJUSTMENTS OF RETIRED PAY

As recommended by the Department of Defense, a new statutory method would be provided for adjustment of retirement pay in the future. This would replace the former system of recomputation of retired pay based on changes in active duty pay rates, which was in effect prior to June 1, 1958.

The proposed new system is the same as the system prescribed by the Congress in the Federal Salary Reform Act of 1962 for adjustment of annuities of civil service retirees. Future adjustments of retired pay for members of the uniformed services would be based on increases in the cost of living as reflected in the Consumer Price Index. Whenever the increase is equal to or greater than 3 percent since the last adjustment of retirement pay or retainer pay, all retired pay rates would be increased by the same percentage.

B. ADJUSTMENTS IN RETIREMENT PAY FOR RETIRED MEMBERS

H.R. 5555 also provides that members who were retired prior to June 1, 1958, and who are paid at Career Compensation Act rates, may recompute their retired pay on the basis of the 1958 pay scale, if that would result in larger retired pay than they now receive. After this adjustment, the retired pay of all persons retired prior to January 1, 1963, would be increased by 5 percent, which is the percentage increase in the Consumer Price Index between June 1958 and December 1962.

For several reasons the Department of Defense supports this provision of the bill.

First, those who were in the active duty force prior to 1958 and were retired prior to June 1, 1958, had reason to expect that their retirement pay would be recomputed whenever the rates of active duty pay were changed. Recomputation was provided for by law and had been practiced for 100 years.

Second, by correcting the inequities which now exist by reason of the differences in rates of retired pay for members retired under the same laws, a more equitable base will be provided for transition to the proposed new statutory system for adjusting retirement pay in

the future.

Although this provision would be of principal benefit to individuals who held positions of high rank during their military careers, we believe this provision to be justified for equitable reasons. We also, believe, however, that it should be made clear that its passage represents an action of equity, and should not be considered a precedent for action in the future.

C. PROPOSED EXTENSION TO MEMBERS RETIRED IN 1963

H.R. 5555 would extend the proposed new rates of basic pay to service members retired during calendar year 1963 but before the effective date of the bill. This provision was placed in the bill by the House Committee on Armed Services.

The Department of Defense recommends that this provision be deleted from the bill.

The effect of this provision would be to provide recomputation for some, but not all, members who retired on or after June 1, 1958. I believe it would be unwise to effect such a distinction.

If this provision is retained in the bill, it could also establish a precedent with respect to future pay legislation. Looking to the future I do not see a sound basis of withholding a comparable benefit from any service member who might retire during a calendar year when a pay bill is pending before the Congress.

Mr. Chairman, I believe I have covered the major provisions of H.R. 5555, and the position of the Department of Defense with respect to those provisions. As I indicated earlier, this portion of the compensation increases proposed by this administration involves an additional cost of over $1.2 billion annually, exclusive of accruing retirement costs of some $235 million associated with the increases. The last pay increase, in 1958, involved an annual cost of $585 million, or less than half of the cost of the proposals we are making.

H.R. 5555 involves substantially the same cost as our initial proposals. The principal shortcoming of H.R. 555, in our judgment, is that it provides insufficient compensation increases in the officer areas. We attach the highest priority to the restoration of the roughly $30 a month increase for the grades of first lieutenant, captain, and major. If funds can be made available for this purpose, we would also recommend a restoration of roughly $30 for lieutenant colonels or O-5's. This would avoid compression, and give adequate recognition to the important responsibilities inherent in that grade. Assuming that it would be prudent to remain within the general total of

funds involved in our initial proposal and in H.R. 5555, we ask your consideration of the following major adjustments in the House bill, in order to restore the desired officer increases:

(a) Eliminate subsistence increases, for both officer and enlisted personnel. During the course of previous hearings on this bill questions were raised, and legitimately, as to whether the subsistence allowance should continue to be regarded as an important element in military compensation, or whether we should move toward a simplification of the pay and allowance system. In principle, we strongly favor the latter course, and we are presently engaged in a serious study of the problem. The further fixing of subsistence allowances by statute would run contrary to any such effort. For example, the enlisted commuted ration has heretofore been subject to administrative determination on the basis of actual food cost. It has varied from $1.15 to $1.03, and between the continental United States and overseas, during the past 5 years. To fix it by statute at $1.25 would introduce a rigidity into the system which we find very difficult to justify.

(b) Permit sea and foreign duty pay or family separation allowance, but not both, for the reasons stated earlier in my presentation. In this connection, I would like to invite the attention of the committee to the fact that the continuation in H.R. 5555 of sea and foreign duty pay, contrary to the recommendation of the Department of Defense, will result in additional pay to many hundreds of thousands of enlisted personnel; and

(c) Eliminate the retroactive application of the proposed new rates of basic pay to members retired after January 1, 1963, and before the effective date of the bill, for the reasons given.

These actions, according to our estimates, would result in future annual savings of some $104 million which should be ample to provide increases in the areas which we have recommended.

In conclusion, Mr. Chairman, I should like to thank you for your forbearance in permitting me to read a long statement albeit on a very complex and important subject. I would not wish the complexities of the matter, however, to obscure the central plea which we are making. A pay raise for the men and women of our Armed Forces is long overdue. The Secretary of Defense and all those associated with him believe that the increases which we have proposed are fully justified both on the grounds of effective management of the force and of equity to the individuals concerned. We have established in the Department of Defense a procedure whereby we will keep military compensation under continuing review, and we will make prompt recommendations to the Congress in the future when we determine that military pay is not keeping abreast of productivity changes in our general economy, as it most certainly should.

Thank you, Mr. Chairman. My colleagues and I will be happy to answer any questions which your subcommittee may have.

Senator CANNON. Thank you, Mr. Secretary, for a very comprehensive statement. I am sure that the committee members will have a number of questions for you.

Mr. Secretary, your statement indicates that, subject to the recommendations for certain junior officer grades, it is the position of the Department of Defense that this bill will provide sufficient increases

for the military compensation structure. Will you state, for the record, now the reasons for that view?

Senator ENGLE. Say that again, Mr. Chairman. I lost you there. Senator CANNON. The statement indicates that subject to the recommendations for certain junior officers, the $30 increase indicated, it is the position of the Department of Defense that the bill would provide sufficient in creases for the military compensation structure. Now would you state for the record the reasons for that view?

Mr. PAUL. I think I can summarize it, Mr. Chairman, in saying that the basic pay increases, by and large which are contained in the bill, are those which we originally recommended after almost a year of intensive study of this subject. With particular reference to the serious retention problem we are having

Senator SALTONSTAL. A little louder, please, Mr. Paul.

Mr. PAUL. I am saying, Senator Saltonstall, that the basic pay increases in the bill, with the exception of the under-2-year service category, are the same as those we had originally recommended.

We arrived at these proposals after a year's very careful study of the problem, with particular reference to the retention problems we have had in certain officer and enlisted areas.

We believe that we have placed the larger increases where they belong. We are particularly anxious concerning the increases for first lieutenants, captains, majors, and lieutenant colonels, or equivalent, because we feel that there has been a tendency in the past several years to provide inadequate increases for these personnel.

Although it is fine to have a substantial salary waiting for you if and when you achieve the rank of general or flag officer, a great many fine officers in our establishment don't achieve that rate for one reason or another. The pyramid gets quite thin at the top.

Therefore we feel that these people should have some expectation of a fair and equitable salary in grades which they are entering or in which they are likely to spend most of their career.

Mr. Chairman, that is the main reason why we are concentrating on that area.

Senator ENGLE. Will the chairman yield? The fact of the matter is when you get to the lieutenants, captains, and majors, that is the point in their career where they make their decision; is it not? Mr. PAUL. Yes, sir.

Senator ENGLE. Mainly.

Mr. PAUL. Yes, sir.

Senator ENGLE. As to whether or not they are going to stay in the service or get out.

Mr. PAUL. Yes, sir.

Senator ENGLE. If we don't get them across that "bridge," we will never hold them as professional officers and as part of our professional Military Establishment. Isn't that the crux of the case?

Mr. PAUL. Yes, Senator Engle; that is it. Most of them make first lieutenant or lieutenant junior grade by the time they have completed their obligation.

Senator ENGLE. So what they did in this bill: They made the bridge 10 feet too short right at the place where you need it most; isn't that right?

When you come up to lieutenant, captain, or major, you are still young enough to get out and get into civilian life and do a job, and if you don't get the kind of pay increase that will motivate you to stay in the services, you are going to get out and take a job in civilian life; isn't that correct?

Mr. PAUL. Yes, sir.

Senator ENGLE. Thank you very much, Mr. Chairman.

Senator CANNON. Mr. Secretary, it is the understanding of the subcommittee that it is the position of the Department of Defense that any valid comparisons of military and civilian pay are exceedingly difficult, due to a number of factors. Some of these elements include job comparisons, fringe benefits, retirement systems, and certain tax advantages.

Now I notice that on page 14 you have attached a chart showing in general a comparison of officers' compensation and civilian earning trends. Would you care to comment on the previous statement now that I made on the difficulty of cranking in all of these various aspects?

Mr. PAUL. Yes, Mr. Chairman. The military pay and allowances system, as it is presently constituted, is not in our opinion comparable to any other system of pay in or out of Government.

In the first place, the salary concept which is embodied in civil service is not the same concept on which we pay military people. In addition to basic pay, allowances are paid for subsistence and quarters, for example. These allowances are nontaxable.

We draw a distinction between an enlisted member or an officer who is married or who is not married. There are various other benefits which are applied to military personnel either in kind or in cash which we haven't even attempted to list as part of regular military compensation, although they are important.

But by the same token, Mr. Chairman, I would defend the fact that we have not included these other so-called fringe benefits or collateral benefits to service personnel. I think it is a very difficult question, for example, Mr. Chairman, whether or not all or any part of medical care for active duty personnel should be included as a benefit.

There is a very strong argument, it seems to me, that could be made to the effect that keeping service members in the kind of physical condition they need to remain in, if they are going to serve their country adequately, is primarily for the benefit of the Government rather than the individual.

On the other hand, there is medical care for dependents and there are a number of other items mounting up to the hundreds of millions of dollars a year which are variously described as benefits, including commissaries and other things of that sort.

We concluded, Mr. Chairman, that it was not feasible to try to add these elements in, in computing regular compensation of military personnel. It was too difficult a job. We are restudying the question now and in the future we may arrive at a different conclusion.

Senator CANNON. So that your chart on page 14 does not cover these items to which you just referred.

Mr. PAUL. No, sir. It includes only basic pay, subsistence allowance, quarters allowance, and tax advantage, because the allowances are nontaxable. However, the fringe benefits of the workers in civilian life are also excluded from the chart.