CHAPTER II
PAY AND ALLOWANCES

INTRODUCTION

Canadians will all agree that compensation should be based on the principle of fair pay for work performed. CF members believe this principle is no longer being applied to them. For those in the civilian workforce, equitable compensation is largely determined by market factors and collective agreements negotiated between employer and employees. These mechanisms are not available to the military. Military pay levels should be set by Government, subject to credible and real oversight by SCONDVA.

What then is fair compensation for assuming the strictures of unlimited liability? Insofar as military service is considered a "calling," part of the contribution made by members is in the form of selfless service - service for which remuneration is not expected. However, there must be limits. When Forces personnel were deployed to help with the "ice storm" they worked long hours and received $12.77 (taxable) in additional Field Operations Allowances; their entire additional daily entitlement for 12 to 18 hour days. Their civilian counterparts and the RCMP, on the other hand, were paid overtime for the extra hours worked. Military personnel were billeted in gymnasiums while civilian workers stayed in hotels.

It must also be remembered that many of those deployed had only recently returned from Bosnia and Haiti and were called back from leave or their training rotation. Many would go on training, after the ice storm, either in preparation for overseas duty or for the re-establishment of skills associated with their primary mandate. None begrudged the fact that they were asked to help and did so enthusiastically. At the same time, they could not but help compare their conditions of work and compensation with those of their civilian counterparts.

In considering changes to the compensation and benefits package we should also remember that our Forces need good recruits. The nature of modern warfare is changing and technical skills are at a premium. Increasingly, recruits are also coming with families and entry level pay is not always adequate when family needs are taken into account. As well, the nature of military lifestyle makes it very difficult to maintain dual income households. On the compulsory posting of CF members, spouses frequently leave well- paying jobs only to find themselves either unemployed or underemployed for long periods at their next location. It is therefore important that we not view the service member as a discreet individual, but as someone who is part of, or potentially part of, a wider social unit - the family. And, it is to the well-being of the entire unit that we must look.

ENSURING EQUITY

A properly designed pay and benefits package also needs to ensure that equity prevails for all CF members, no matter where they serve. While the principle of equality insists that we treat everyone the same, with regard to the application of rules and entitlements, equity focuses on the importance of outcome. Equity teaches that it is acceptable, indeed at times necessary, to treat people differently in order that they may enjoy equality of condition. If we are to do away with the myriad of frustrations faced by serving members, then we need to assure equality of outcome. CF personnel and their families living in high cost areas like Victoria should be able to enjoy the same standard of living as those located elsewhere. As a principle, once rents and other necessities are accounted for, the disposable income of similar households at different locations should be more or less the same.

Equality of outcome must be the guiding principle for putting in place an equitable pay and benefits package. However, to do so will require treating CF personnel differently from those in the civilian sector; including foreign service officers and members of the Royal Canadian Mounted Police (RCMP). Compulsion of service factors for the CF are far more stringent than for the latter two groups. It is essential that this principle be accepted by those agents that play a key role in determining taxation and benefits for the Canadian Forces; namely, Revenue Canada, Treasury Board, and the Government itself. Our recommendations are cast in light of the underlying assumption that CF personnel require differential treatment - an assumption we believe to be both reasonable and necessary.

In coming to our conclusions we have looked at pay and allowances in a holistic manner, rather than treating items on their own. We began with the basic question, "what exactly is the purpose of the various allowances and benefits assigned to Forces members?" In searching for an answer, what we found was a patchwork put in place to deal with the exigencies of the moment. Long-range planning and a clear sense of purpose do not seem to underlie the current system. We believe that rationalizing the various allowances and benefits into clearly recognizable and transparent entitlements should be a priority for the Department. Again, the overall system must ensure equality of outcome for all serving members.

Too often good intentions can lead to unintended, and unfortunate, consequences. During our hearings we heard how something as seemingly innocuous as the posting allowance can cause significant dissatisfaction. The allowance is given to members posted to a new location to compensate them for the turbulence associated with the posting; the entitlement is one month's pay for married members and one-half month's pay for single members. The amount received is therefore dependent on marital status as well as rank. Are a single member's expenses so much less than those of someone married? Are the expenses of a Colonel so much more than those of a Corporal? Why was the allowance tied to rank?

Furthermore, the allowance is taxable! Thus, once received, a large portion is taxed back. It is added to the individual's basic pay and, because one has moved into a higher tax bracket for that year, may lead to the loss of other benefits. During our hearings we heard of individuals being given the posting allowance and then not being eligible for the child care benefit because of the increased gross income received. Rather than help ease the member's transition to a new location, the posting allowance can have the unintended consequence of simply increasing the level of frustration.

PAY

Of all the irritants expressed by CF personnel, the pay issue was the most pronounced. In addition to believing that they are not adequately compensated for the work they do, they have been particularly annoyed with the long delays in closing the salary gap with their public service equivalents.

Since the late 1960s the cornerstone of CF compensation has been comparison with the Public Service (PS). At that time, the Federal Public Service was granted the right to collective bargaining. Because the CF did not have a similar right, it was decided that Forces personnel would receive compensation and benefits comparable to that of the Public Service. The underlying principle was that compensation and benefits would be "comparable to," not "equal to" or "the same as" those of the PS. As well, the system was to provide for the recognition of factors that are unique to the military. Thus, when we speak of comparability with the Public Service, we mean general and not absolute comparability.

Prior to the pay freeze, imposed in 1991, CF pay studies showed that Non-Commissioned Members (NCMs) were 2.2% behind their PS counterparts and that General Service Officers (Second Lieutenant to Lieutenant-Colonel) were 0.9% behind. During the pay freeze, further study established that NCMs in fact had a total shortfall of 6.7%, including the initial shortfall of 2.2% and that General Service Officers (GSOs) had a total shortfall of 14.7%, including the initial shortfall of 0.9%. These figures were accepted by Treasury Board and a series of incremental adjustments were then made beginning in April of 1996. Thus far, these were:

For Non-Commissioned Members

• April 1996 - 2%;
• April 1997 - 1.5%;
• October 1997 - 0.6%;
• April 1998 - 1.2%.

For General Service Officers

• April 1996 - 0%;
• April 1997 - 2.4%;
• October 1997 - 1.1%;
• April 1998 - 2.4%.

Thus, NCMs are still 1.13% behind in relation to PS equivalents and GSOs 8.2%. Pay comparability adjustments do not apply and are not given to senior officers (Colonel and above).

Effective 1 April 1997 Non-Commissioned Members received an economic pay increase of 1.47% while GSOs received 1.15%. Economic pay increases are not part of the pay comparability program and are intended to mirror similar pay increases awarded to the Public Service. On 1 April 1998 NCMs and GSOs were given an economic increase of 2% and environmental allowances (field operations allowance, sea duty allowance, etc.) were increased by 3.85%. Environmental allowances are intended to provide financial compensation to CF members whose military duties involve sporadic or continuous exposure to adverse environmental conditions. They are meant to serve as an incentive to attract and keep properly motivated personnel under such conditions.

In addition to the overall pay freeze, incentive pay for Non-Commissioned Members and General Service Officers were frozen for two years (1994 and 1995). Performance pay for senior officers (Colonel / Captain (Navy) and above), all legal officers and specialist officers (Lieutenant-Colonel / Commander (Navy) and above) was not awarded for four years, 1992-1995. Incentive pay categories for NCMs and GSOs are normally applied each year. These categories allow service members, based on time in rank, to progress from the basic salary to the top salary established for that rank. There are no incentive pay categories for senior officers. Instead, the latter are eligible for performance pay. Performance pay is the only mechanism available for senior officers to progress through their salary range and is awarded annually. Performance pay is a component of the senior and specialist officers pay plan, just as incentive pay categories is part of the pay plan for NCMs and GSOs.

While all ranks have been frustrated by the problem of pay comparability, feelings were particularly acute among Non-Commissioned Members; this is understandable. Already buffeted by downsizing and the lack of promotion opportunities - which have a direct impact on pay - they found their pay frozen at a level significantly behind that of their public service equivalents. Nor were they mollified by the incremental fashion of small adjustments that were subsequently made. It is those in the lower ranks who have disproportionately suffered from the financial hardships of low pay, increased postings, and added tasking. We therefore recommend:

1. That the base pay gap between Non-Commissioned Members and their public service equivalents be closed no later than 1 April 1999.

We further recommend:

2. That the base pay gap between General Service Officers and their public service equivalents be closed by 31 December 1999.

However, closing the comparability gap is only a partial, though necessary, solution to the provision of fair and adequate pay. If we are to retain skilled technicians, recruit good quality people, and provide CF members with a decent standard of living we will have to increase their pay. Although there is a general need for a pay increase, we believe it is especially important that a significant increase be provided for the "entry level" ranks. It is they who are increasingly coming with young families and finding it difficult to make ends meet; all too often having to turn to food banks. We therefore recommend:

3. That, effective 1 April 1999, the pay for Privates, Second Lieutenants and Lieutenants, essentially entry level ranks, be increased by not less than 10%.

4. That, effective 1 April 1999, the pay for Non-Commissioned Members be increased by approximately 6%; for Captains, through and including Lieutenant Colonels, by approximately 3%; and for Colonels and above by approximately 2%.

5. That the Canadian Forces pay increases should then mirror the economic increases of the Public Service and be granted in a timely fashion.

These percentages are approximations of what we perceive the needs to be. It will remain with the Department of National Defence to determine how best to implement the mechanics. For example, in order to avoid overlap of income between ranks, it may be more appropriate to use a combination of different percentages combined with increased benefits. The ultimate goal being to significantly increase the real disposable income of CF personnel, regardless of where they serve. Whatever approach is adopted, we must ensure that those at the lowest and journeyman levels be provided with a decent living wage. This is something the Department must accomplish, but, it must not do so at the expense of training and equipment. It is therefore imperative that the Government provide the requisite appropriation of funds in order that our goal be achieved.

THE RESERVES

The foregoing increases must, of course, apply to the Reserves whose pay is now pegged at 85% of Regular Force pay. We also welcome the introduction of the Reserve Force Retirement Gratuity. The addition of this Gratuity to Reserve pay goes a long way in recognizing their increasingly important role. However, given that some Reservists serve alongside Regular Force members in peacekeeping operations, and that the Reserves will continue to be a vital element of the Total Force, we recommend:

6. That the Department of National Defence pursue initiatives to put in place a real pension plan for the Reserves and report annually to SCONDVA on the progress achieved.

The present Gratuity is an important first step, but more needs to be done in this regard if the significant contribution of the Reserves is to be properly recognized. If corporations can put pension plans in place for part-time employees, then so can the Department of National Defence.

Of all the irritants faced by the Reserves, the problem of receiving pay in a timely fashion has proven the most pronounced. Indeed, the Committee has heard of this problem for several years now and the Department has, for several years, been telling us that "the problem is being fixed." To date, the problem has not been fixed and while we note the intent to integrate the Reserve pay system with that of the Regular Force, we recommend:

7. That, in the interim, the Department of National Defence immediately rectify the current problems with the Reserve Force pay system by 31 December 1999.

8. That, by 31 December 1999, as soon as practicable, a common pay system be adopted for the Regular Force and the Reserves.

Whichever system is in use, Reservists must be paid on time, every time and receive accurate pay stubs.

THE MILITARY FACTOR

Part of the military pay package includes what is referred to as the Military Factor or the X-Factor. In 1974, the Military Factor was set at 4% of salary and was subdivided in 1981 into three distinct components that are still in effect today. The obligation to adhere to a military code of service discipline was set at 0.5% of salary. This adjustment was meant to compensate for the loss of freedom resulting from obligations such as the need for uniformity and compliance, and the absolute requirement to follow orders. Other elements are the frequent separations from families set at 1.5% of salary, and the family posting turbulence from relocations at 2%.

Needless to say, these valuations are highly subjective. However, given current realities, the separation from families factor and, in particular, the posting turbulence factor should be increased. These were stresses consistently mentioned during our hearings. But, as a Committee we do not believe we have the requisite expertise to determine exactly what the appropriate weighting should be. This is something we will need to leave in the hands of the Department. As well, given the changing nature of deployments and the increased risks this entails, other additional, or more appropriate, factors could be worked into the overall valuation of the Military Factor. We therefore recommend:

9. That the Department of National Defence immediately review the Military Factor to ensure that both the criteria and the values assigned properly reflect the uniqueness of military service and that the results be reviewed by SCONDVA on an annual basis.

OVERTIME

The total compensation formula currently stipulates that for the ranks of Lieutenant-Colonel and below the valuation for overtime be set at 4% of salary and for Non-Commissioned Members at 6%. As with the valuations assigned to the Military Factor, these are essentially subjective and not truly reflective of the extra hours CF personnel are often expected to work. Overtime is a reality of military service, but given the effects of downsizing, multiple taskings and deployments suggest that the overtime factor needs to be revisited. We therefore recommend:

10. That the Department of National Defence, in recognizing that overtime is a reality of military service, re-examine the valuations of the overtime factor in order that they properly reflect the workloads experienced by CF personnel and report to SCONDVA on an annual basis. The calculation for overtime should remain integrated to the total compensation formula.

ANNUAL LEAVE

An important aspect of any pay and benefits package is annual leave. Its purpose is to afford one the opportunity to recoup and spend quality time with one's family. CF personnel have a leave entitlement of 20 days per annum for the first 5 years of service and 25 days per annum thereafter. However, there are problems with its application. Currently, members are expected to take their entire leave entitlement within the calendar year it is granted. One may only accumulate, and carry over, 5 days per year to a maximum of 25 days over the course of one's entire career. Any leave that might be accumulated over the 5-day yearly allotment must be paid out by the Commanders of Commands.

The consequence of this has been to force members to take leave during periods when it is neither convenient nor desirable for them to do so; negating the purpose for which leave policy is essentially designed. Commanders, rather than cash out leave, designate periods when it must be taken; leaving many members in the unfortunate position of taking vacations without their families or during periods that are simply not desirable. We therefore recommend:

11. That, the Department of National Defence develop management practices that will allow CF members to take leave in order to meet personal and family expectations. Subject to operational requirements, designated leave periods should be mutually acceptable to commanding officers and those desiring leave. A report should be made to SCONDVA on an annual basis.

This might simply entail allowing Commanders more flexibility with respect to leave carry over, but, whatever practice is put in place it must ensure that CF personnel can take a significant portion of their vacation leave when they deem it appropriate.

ACTING PAY

The Canadian Forces do not have a policy in place that compensates members for "acting positions." Acting positions in the CF are those where an individual of a given rank is posted to a position of higher rank and is expected to fulfil those duties on an ongoing basis. These are positions which are in fact vacant but for which someone of the designated rank is not available. However, an acting position would not apply to a Deputy Base Commander, whose responsibility it is, from time to time, to fill in for the Base Commander when the latter is absent; nor to anyone else who might be filling a position of higher rank for only a short time. For example, if someone were filling a higher level position, because the individual normally filling that position is on a training course, this would not qualify as an acting appointment. It would, however, apply in the instance of a Corporal who is posted to a position which should, under normal circumstances, be filled by someone of the next rank level.

In the Public Service, acting pay can be given when someone fills a higher level position on only a short-term basis, and is granted after a specified number of days. Provisions for acting pay in the Public Service are then considerably more generous than in the CF. One of the principles we established at the outset was that CF members should get fair compensation for work performed. We therefore recommend:

12. That when an individual in the Canadian Forces is posted to a position that calls for a higher rank level, acting pay, at the higher rank level, should apply immediately.

MESS DUES

An issue brought to our attention on several occasions was that of compulsory mess dues, which are deducted directly from an individual's pay. Many objected to the compulsory nature of mess membership while others argued that the institution itself had become an anachronism. Because mess dues do not qualify as professional dues they cannot be made tax deductible and are seen, by some, as an unwanted drain on income; albeit a small one.

Historically, messes have been an important part of military culture. Base and unit commanders have historically had the authority to build cohesion and esprit de corps within their units. Military messes have been used to socialize new members into the traditions of military service and afforded CF personnel an avenue for leisure activities. However, younger members no longer tend to identify with them in the same way as did earlier generations, sometimes dismissing them as little more than "drinking clubs." If the CF is going to maintain the viability of the military mess, then senior leadership will need to demonstrate its utility as a core institution to its younger members, both Officers and NCMs. We therefore recommend:

13. That the CF rethink within a year the current relevance of military messes with a view to demonstrating their utility, particularly to younger members. Mess dues should be tax deductible. A report should be made to SCONDVA on an annual basis.

CFS ALERT

For Forces members, "hardship" postings need not necessarily mean deployment overseas. This is certainly the case for CFS Alert. We are therefore glad to see that the Department of National Defence has now approved a policy of 21 days leave, including travel time, for those on an attached posting of more than 4 months to Alert. Alert is now being treated more like an operational deployment similar to Bosnia, although the risk factor does not apply. Currently, those serving at CFS Alert are entitled to a special allowance upon the accumulation of six months service. However, this allowance is somewhat less generous than the Foreign Duty Allowance. Given the isolation and hardships faced, and the fact that the Department itself has now come to recognize service at Alert as an operational deployment, we recommend:

14. That the Special Allowance-CFS Alert be replaced by an allowance similar to that of the Foreign Duty Allowance, and that it be applicable from the date of arrival at Alert.

15. That the appropriate level for the new CFS Alert allowance be significant and therefore set at rating level IV of the Post-Differential Allowance.

MATERNITY LEAVE AND SEVERANCE PAYMENT

Insofar as women are playing an increasingly important role in all aspects of the CF we were surprised to discover that maternity leave does not qualify, as time served, for purposes of severance pay. This is a benefit enjoyed by the Public Service but, for whatever reason, has not been made available to CF personnel; a fact we find both inappropriate and discriminatory. In fact, civilian employees of the Department already have this benefit. We therefore recommend:

16. That the Department of National Defence immediately adopt the benefit counting maternity leave as time qualifying for severance payment.

BI-WEEKLY PAY

An irritant for many members is the fact that they do not receive their pay on a bi-weekly basis as does the Public Service. This means that month-end budgeting can at times prove difficult. While a bi-weekly pay system would not entail extra income for service personnel it would entail an initial and significant administrative cost to the Department, especially when we take into account the "year 2000 problem." Nevertheless, we recommend:

17. That the Department of National Defence move to a bi-weekly pay system by 31 December 1999.

COST-OF-LIVING ALLOWANCE

One of our principal goals is to ensure that CF personnel enjoy a similar and predictable standard of living no matter where they serve. We therefore need to stabilize the cost-of-living factor from one region to another. For example, the housing costs on the West Coast are double those found in the Atlantic provinces. While, military personnel presently receive some help to deal with high costs of living, it is not adequate. When briefed in Yellowknife, we were given a detailed example of the myriad of allowances available to members serving there. The greatest frustrations proved to be the unpredictability, largely due to taxation, of the entitlements and the complexity of the scheme.

For example, when serving in Yellowknife, CF personnel are entitled to an Isolation Allowance consisting of three components: environment, a living cost differential, and fuel and utilities. Isolated posts are selected by the Treasury Board and evaluated on the basis of population size, climate, road access, availability of commercial transportation and topography. A Cost-of-Living Differential is payable at an isolated post when prices for food and other goods and services are abnormally high in comparison with the location identified as the major source of supply for a region. The amount of living cost differential depends on the price differential, as measured by Statistics Canada, between the isolated post and its major source of supply. Statistics Canada carries out periodic surveys of isolated posts to determine these costs. A Fuel and Utilities Differential is payable at designated isolated posts to assist employees to meet abnormally high prices for fuel and utilities caused by higher transportation costs and consumption rates imposed by the geographical location of the isolated post. The major source of supply for Yellowknife is Edmonton, Alberta. Those CF personnel living on the economy (i.e. private accommodation) in Yellowknife would be entitled to a fuel and utilities payment of $302 monthly (taxable).

There are also three allowances available to residents in isolated postings that pertain to housing. These are: the Northern Region Deemed Housing Benefit (NRDB), the Northern Residents Deduction and the Northern Regional Special Accommodation Allowance. The NRDB is a taxable benefit reported as income by the employer in the employee's T4. In order to capture the value of any "rental subsidy," the latter is based on the difference between the "fair market value" of government accommodation (Permanent Married Quarters) and the "base shelter value" for that accommodation (the "base shelter value" usually equates to the amount paid as rent by the CF member). In Yellowknife, the NRDB benefit varies between $600 and $1,400 depending on the type of accommodation.

The Northern Residents Deduction is a special deduction from net income, for northern residents in respect of the deemed housing benefit that is included in their income. Residents of Yellowknife may claim a deduction from net income of $450 on their Income Tax Return (up to a maximum of 20% of net income). The Northern Region Special Accommodation Allowance is a flat rate taxable allowance of $450 per month. This allowance was implemented in 1988 to help offset the negative impact of the deemed housing benefit. Occupants in Yellowknife were faced with a situation in which the Northern Residents Deduction of $450 per month was more than offset by the deemed taxable housing benefit in the order of $800 to $1,200 per month. In 1988, Treasury Board then approved payment of a taxable allowance in the amount of $450 per month for all Yellowknife personnel. Neither the deduction nor the allowance are indexed for market inflation, hence upward growth in the Yellowknife market will inevitably erode the value of both the deduction and the allowance.

Finally, personnel in Yellowknife are also entitled to the Accommodation Assistance Allowance (AAA). This allowance is designed to alleviate the impact of high rents in expensive areas. Members posted to locations where local rents are 12.5% or more above the national average rents qualify to receive AAA. While Yellowknife is such an area many members are not paying the market rents on which AAA is based. Therefore, their AAA must be reduced to the amount that their actual charge exceeds the national average Permanent Married Quarters (PMQs) rent for their rank and family size. Members not paying PMQs rents that exceed the national average would not receive AAA.

The questions we might simply put are: why are there so many allowances tied to accommodation? Why have these not been rationalized into a predictable and consistent entitlement? In the next chapter we deal with the housing issue and make recommendations that we believe will properly see to the needs of CF members in this regard.

However, there still remains the problem of the varying cost-of-living at different locations. Again, what members asked for was a simple and easily understandable entitlement that would allow them to predict exactly what their disposable income would be. Taxing allowances makes this predictability difficult for many. When moving to a new location, the expectation is that, once basics have been taken care of, disposable income should be the same wherever one is posted.

We believe the best way to achieve this is to establish a cost-of-living allowance (COLA) that would apply to the different locations to which CF personnel are posted in Canada. This is an approach that has been adopted with considerable success in the United States. The new COLA would take current allowances and benefits and consolidate them into one global cost-of-living benefit. We also believe that this restructured benefit should be applied equitably to all members and should therefore not be tied to rank. After all, does it cost a Colonel in Yellowknife more to clothe and feed his/her children than it does a Corporal? The entitlement would be paid as a flat rate and given as a non-taxable cash grant; thereby ensuring equity, transparency and predictability. The methodological approach might then be to establish an appropriate basket of goods that could be used in determining the cash value of the entitlement. We therefore recommend:

18. That the Department of National Defence establish a non-taxable global Cost-of-Living Allowance (COLA) to be paid to CF personnel posted at locations in Canada.

We also believe that, in light of the proposed new entitlement for CF members in Canada, it might be useful for the Department to revisit its allowances for those serving overseas with a view to bringing them in line with the COLA. We therefore recommend:

19. That the Department of National Defence adopt a similar approach, in line with the domestic COLA, to the cost-of-living entitlements for CF members serving overseas. The Department should report to SCONDVA within a year.

PAY REVIEW

Finally, we simply note that it is important we not let the pay and benefits of the CF again fall into disarray. In order to ensure that CF compensation remain fair and equitable, we recommend:

20. That the Government appoint an independent review panel, at least once every five years, to examine, and make recommendations with regard to the appropriateness of compensation and benefits provided to the Canadian Forces. The panel should report to SCONDVA.

We fully recognize that certain of our recommendations will require changes in the manner in which Treasury Board and Revenue Canada do business, so to speak. However, our military has also had to adapt itself to new realities and challenges. It is important that we not sacrifice the well-being of our military personnel to bureaucratic inertia.