7th CPC Recommendations vis-a-vis Armed Forces Pay Review Body & Senior Salaries Review Body of UK

 7^th CPC vis-à-vis UK’s Senior Salaries Board 2015

A comparative statement with 20:20 hindsight

Part I

7^th CPC Report released in Nov 2015

Composition

The Seventh Central Pay Commission had Justice (retd) A K Mathur as the Chairman, with Shri Vivek Rae IAS (retd) and Prof Rathin Roy as Members.

Every other service was represented in the phalanx of officers, except the Defence Forces.

However, one Shri D K Rai, Director at that time, was one, in the words of the Chairman, “who had a deep insight into the financial matters especially, the defence. His knowledge about defence finance has been of great help to this Commission in determining the pay structure for the defence forces.”

Recommendations of the Seventh Central Pay Commission pertaining to Defence Forces

General Approach to the Pay Matrices: Civil and Defence

5.2.3. Pay levels have been set out in a pay matrix, separately for civilian and defence forces Personnel. The Commission has evolved a fresh approach by merging the grade pay and pay bands into distinct pay levels. The approach regarding the pay levels and pay matrix has been explained in Chapter 5.1. Some of the major points in the pay matrix which have a common bearing on civilian and defence forces personnel are highlighted below.

5.2.4. Pay Bands and Grade Pay: Pay Bands and Grade Pays have been dispensed with and the new functional levels have been arrived at by merging the Grade Pay in the Pay Band. All the existing levels have been subsumed in the new structure.

5.2.5. Entry Pay: The entry pay for various ranks of defence forces personnel, other than MNS Officers, has been arrived at on the same premise, as has been done in the case of civilian. As an illustration, entry pay for a Captain has been arrived at as follows:

Entry pay in existing pay band + (Residency Period for promotion to Captain from Lieutenant x annual increment) + grade pay of the rank of Captain = ₹15,600 + (2 x ₹630) + ₹6,100 = ₹22,960.

5.2.6. An exception to this approach has been made in the case of Brigadiers/equivalents where pay for the rank has been arrived at as per the fitment table notified by the Ministry of Defence through its Special Army Instructions of October 2008.

5.2.11. Equivalence in Pay Levels for Certain Levels: The starting pay level for officers at Group `A’ entry level is identical at ₹56,100 in the case of both civilian and defence service officers. Similarly the pay of the Major General and Joint Secretary and equivalent officers and those above [viz., Lieutenant General (in HAG, HAG+, Apex) and Chief of each defence service] has been kept identical with their civilian counterparts.

Identical pay level has been devised for JCO/ORs and their civilian counterparts corresponding to the existing pay bands and grade pay.

5.2.8 Rationalisation: An ‘index of rationalisation’ has been applied while making enhancement of levels from Pay Band 1 to 2, 2 to 3 and 3 onwards on the premise that role, responsibility and accountability increases at each step in the hierarchy. At the existing PB-1, this index is 2.57, increasing to 2.62 for personnel in PB-2 and further to 2.67 from PB-3.

Recognising the significantly higher degree of responsibility and accountability at levels corresponding to Senior Administrative Grade, the entry pay is recommended for enhancement by a multiple of 2.72. The same multiple is also being applied at the HAG and HAG+ levels (emphasis supplied). At the apex level the index applied is 2.81 and for the Service Chiefs/Cabinet Secretary the index has been fixed at 2.78.

Military Service Pay (MSP)

5.2.22. The defence forces personnel, in addition to their pay as per the Matrices above, will be entitled to payment of Military Service Pay for all ranks up to and inclusive of Brigadiers and their equivalents. The Commission recommends an MSP for the four categories of Defence forces personnel at ₹15,500 for the Service Officers, ₹10,800 for Nursing Officers, ₹5,200 for JCO/ORs, and ₹3,600 for Non Combatants (Enrolled) in the Air Force per month. MSP will continue to be reckoned as Basic Pay for purposes of Dearness Allowance, as also in the computation of pension. Military Service Pay will however not be counted for purposes of House Rent Allowance, Composite Transfer Grant and Annual Increment.

6.1.28. Taking note of the specific problems faced by Defence Forces personnel (viz., Army, Navy and Air Force) on account of rigours of military life, the VI CPC recommended an additional, separate element of pay for the Defence Forces called Military Service Pay (MSP).

The VI CPC also intended, it was in fact so articulated, that the edge previously enjoyed by the Defence Forces, over the civilian scales would be replaced by the MSP.

6.1.29. Para 2.3.12 (page 76) of the VI CPC Report inter alia states: “The edge enjoyed by the Defence Forces over the civilian scales will, after suitable enhancement to meet the genuine aspirations of the Defence Forces, be given as a separate element called Military Service Pay.”

6.1.31. The Commission, after careful consideration of the matter, notes that there are exclusive elements that distinguish the Defence forces personnel from all other government employees. The intangible aspects linked to the special conditions of service experienced by them set them apart from civilian employees. Defence forces personnel are expected to conduct full spectrum operations in operational environments which are characterised by extreme complexity and may include force projection outside India’s territorial boundaries. Defence forces personnel are trained for war like situations with highly sophisticated war machinery. They have to keep themselves posted in modern warfare. The military institutions are a key symbol of national pride. Further, the superannuation of defence personnel, particularly Other Ranks (ORs) at a younger age, is also a factor that has been considered. The Commission has therefore taken a conscious decision that the Military Service Pay, which is compensation for the various aspects described above and for the edge historically enjoyed by the Defence Forces over the civilian scales, will be admissible to the Defence Forces personnel only (emphasis in the original Report).

6.2.114. Applicability of MSP: A demand has also been made that MSP be granted to all officers. Currently MSP is paid up to the level of Brigadiers. The IV, V and VI CPCs, on examination of the issue, granted Rank Pay/Military Service Pay up to the level of Brigadier.

Superannuation of personnel at a relatively younger age is one of the important considerations being laid down by this Commission for the grant of MSP. Major General and equivalent officers and those above them retire at 58 or beyond, thus serve for periods comparable, with their civilian counterparts. Having regard to all these factors the Commission is of the view that the existing application of MSP up to the level of Brigadier is appropriate and does not call for a review (emphasis in the original).

6.2.115 MSP to be distinguished from ‘Edge’:

The V CPC, after deliberating on the issue of Military Service Pay, did not recommend granting it. It recommended continuance of all existing concessions and also recommended an edge in the starting pay scale. The VI CPC introduced the Military Service Pay for all Officers up to the level of Brigadiers, without reducing the existing concessions. The VI CPC went on to state upfront that MSP constitutes the ‘edge’ being provided to the defence forces personnel over civilian pay scales. This Commission taking note of the evolving pay structure of the defence forces personnel and what has been averred by the VI CPC is in agreement with it and is of the view that MSP is the ‘edge’ being provided to the defence forces personnel.

Please return and read Para 5.2.8 above – Rationalisation before looking at the table below

Comment: It may be seen from the revised/amended Pay Matrix that when MSP is added to and at highest levels of Basic Pay of Level 13 (Gp Capt) and Level 13A (Air Cmde), then officers of levels 14 and above, though paid higher Basic Pay, receive lesser emoluments which also adversely affects pension (pension being 50% of RE) as illustrated below:

           

Level	Rank	Reckonable Emoluments	Pension
Level 13       Row 16	Group Captain (Gp Capt)	203500+15500 = 219000	109500
Level 13       Row 17	Group Captain	209600 + 15500= 225100	112500
Level 13       Row 18 (Maximum)	Group Captain	215900+15500 = 231400	115700
Level 13 A  Row 14	Air Commodore (Air Cmde)	205100+15500= 220600	110300
Level 13A, Row 15	Air Commodore	211300+15500= 226800	113400
Level 13A Row 16 (Maximum)	Air Commodore	217600 =15500 = 233100	116550
Reckonable Emoluments & Pension of Levels 14 to 17
Level 14 (Maximum)	Air Vice Marshal (AVM)	218200	109100
Level 15 (Maximum)	Air Marshal (Air Mshl)  HAG	224100	112050
Level 16 (Maximum)	Air Marshal HAG+	224400	112200
Level 17 (Apex I, Fixed)	VCAS/AOC-in-C	225000	112500

So much for the expertise of Shri D K Rai! How Chairman & Members accepted it??

A Non-Partisan Study by IDSA commissioned by 7^th CPC

6.1.7 The Institute for Defence Studies and Analyses (IDSA) was also commissioned to undertake a study on the “Nature, Quantum and Components of Defence Expenditure and Defence Pensions.” The purpose of this engagement was to obtain an independent feedback from a non-partisan body dedicated to research and policy in defence and security, with particular reference to pay, pension and defence expenditure in India and comparable countries.

However, nowhere in Chapter 6.1 (from Para 13 to 18) has the 7^th CPC commented on what IDSA published on X-Factor for Senior ranks of the Armed Forces of UK (given that they retire around the same ages as in Indian Defence Forces – see Para 5.12. on SSRB Report 2019 below) nor on the Combat compensation for the Armed Forces of the USA. A few extracts from the IDSA report follow.

From the IDSA report

IDSA was tasked by the 7th Central Pay Commission vide Work Order Number 7th CPC/62/Studies/IDSA/2 dated 16-07-2014 for conducting a study on “Nature, Quantum & Components of Defence Expenditure and Defence Pensions, inter alia, Analyse the nature, quantum and components of Defence Expenditure from 1995-96 to 2013-14 with a specific focus on salary versus non-salary component. How this compares with similarly placed counties may also be analysed in detail.

4.53 ‘X-factor’, was introduced in 1970 in recognition of the disadvantages of service life, such as: danger; turbulence; separation; hours of work; restrictions on leave and access to trade union  membership; impact of the job; and social aspects of the job. X-Factor is an addition to pay, which recognises the special conditions of service experienced by members of the Armed Forces compared with civilian employment. The rate of the X-factor is reviewed every 5 years by the AFPRB. In 2008 the AFPRB recommended that the X-factor be increased by 1% to 14% of base salary. This was last reviewed in 2013. AFRB had undertaken a full examination of a wide range of evidence including MOD’s assessment of changes for the military; independent research on civilian trends; and views of Service personnel and their families. AFRB’s independent analysis of the evidence led it to conclude there had been deterioration in the conditions of military life relative to civilian life. AFRB recommend that X-Factor should increase by 0.5 percentage point to 14.5 per cent. .

USA

4.55 Every four years, the president directs56 “a complete review of the principles and concepts of the compensation system for members of the uniformed services.” The First Quadrennial Review of Military Compensation (QRMC) was convened in 1965.

4.67 Combat Pay and Combat Zone Tax Exclusions: The report examined these in detail, and based on their detailed analysis has recommended a review, which ensures a fair reward proportionate to the risk. It brings out that the two types of combat pay i.e. Hostile Fire Pay (HFP) and Imminent Danger Pay (IDP) are meant to cover two different situations. HFP had traditionally been reserved for the hazards of open warfare, not for the risks associated with low-intensity conflicts outside of war zones, which characterized many of the military deployments and peacekeeping operations of the 1980s and 1990s and Imminent Danger Pay (IDP), which provided

HFP-equivalent pay to members in imminent danger due to civil war or insurrection, terrorism, or wartime conditions was introduced.

4.71 The 11th QRMC recommended:

Establish differentials in hazardous duty pays:

• Set Hostile Fire Pay at an amount higher than Imminent Danger Pay.

• Establish more than one level of Imminent Danger Pay to recognize different levels of exposure to danger.

When the sublime gets ridiculous!

From page 110 of the IDSA report

7^th CPC wanted IDSA to “Compare the salary structure of personnel in the Indian Defence Forces with those in similarly placed countries, preferably in purchasing power parity (PPP) terms” (emphasis supplied)

“4.73   Purchasing-power parity in theory implies that the exchange rate between one currency and another is in equilibrium when their domestic purchasing powers at that rate of exchange are equivalent. In short, what this means is that a bundle of goods should cost the same in India and the United States once you take the exchange rate into account. But in real life what one gets to see is different. The theory may be tested using two American products that are globally available. One product is the ‘Apple I Pad’ (emphasis supplied). Apple product is designed in America, major portion of hardware used is manufactured in South East Asia and the products are assembled in China.

The other product is the MacDonald’s ‘Big Mac Burger’ (emphasis supplied). The recipe is standard all over the world; the ingredients are sourced, the wages, outlet rentals, establishment costs are incurred as per the local market and priced for sale in local currency. The ‘Big Mac index’ was invented by The Economist in 1986 as a light-hearted guide (emphasis supplied) to whether currencies are at their “correct” level. It is based on the theory of purchasing power parity (PPP), the notion that in the long run exchange rates should move towards the rate that would equalise the prices of an identical basket of goods and services (in this case, a burger) in any two countries. The price of both these global products is used to test the theory. While purchasing power parity theory helps us understand exchange rate differentials, exchange rates do not always converge in the long run the way PPP theory predicts.”

Certain tables were provided by IDSA and 7^th CPC Report states “6.2.26 The tables above point to the fact that defence service officers and JCO/ORs in India, based on VI CPC pay scales, are placed quite well in terms of pay, even in relation to defence personnel in countries like US and UK, where the GDP per capita in PPP terms for the country as a whole is significantly higher than that of India- 9.4 times in the case of US and 6.7 times in the case of UK ” and goes on to add, (virtuously?), “6.2.27 These conclusions are equally applicable to Civilian employees who are similarly placed” but is no evidence (ah, yes, evidence!) in the tables on Page 111 and 112 on the Purchasing Power Parity of Civilian Officers of the Govt of India vis-à-vis Civilians officers of the UK or the USA.

Just curious:

1.         How many Defence Forces officers purchased/used Apple I Pad? How many have ordered/eaten Big Mac Burger? So couldn’t the IDSA find some other products of every day use – milk? Whole wheat bread? Vegetables like tomato/potato?  

2.         Why didn’t the 7^th CPC request IDSA or any other “non-partisan” expert body to compare PPP vis-à-vis salaries of Civilian employees (particularly IAS) with counterparts in the other countries?

3.         And the case for continuing the edge for IAS was defended vigorously by the Member of the 7^th CPC, the argument by Shri Vivek Rae (IAS retd) was all of pages 151 to 157 (7 pages) citing several Court judgments. On the MSP for Maj Gen & above was dismissed inspite of higher Index of Rationalisation (2.72 & 2.81)on (a) precedent, (b) retirement ages of 58 years summed up in 4 short paragraphs.

Further, there were many judgments to justify why a Senior officer cannot draw lesser pay/pensions than a junior officer. (Some of which have been quoted in Writ Petition No. 36589 of 2019 in the honourable High Court for the States of Punjab & Haryana).

Perhaps ‘Charlie’ Browne was under some pressure not to take up the offer of Shri Pranab Mukherjee (who in 2006 recommended to then Prime Minister that Defence Forces Pay etc should be referred to a separate Pay Committee/Commission). Even the presence of a knowledgeable Defence Forces member would have also ensured that Defence Forces be heard.

Part II

Armed Forces Pay Review Body & Senior Salaries Review Body of United Kingdom

1 April 2014 and 1 April 2015 military salaries including X-Factor incorporating our recommendations released in March 2015

Review of X-Factor components

3.86. Our 2014 Report included a section outlining proposed amendments to the individual elements that make up the X-Factor, in order to ensure it is more relevant and measurable. We committed to seek the views of the SFFs and MOD before confirming the revised components, and this section reports back on those views and includes a table setting out the final list. Definitions of the components can be found in Appendix 7.

3.87. X-Factor is a pensionable addition to pay that recognises the special conditions of service experienced by members of the Armed Forces compared with civilians. It accounts for a range of potential advantages and disadvantages which cannot be evaluated when assessing pay comparability. X-Factor is not intended to compensate for the particular circumstances that Service personnel face at any one time; rather it reflects the broad balance of advantage and disadvantage averaged out across a whole career. We last reviewed X-Factor in our 2013 Report and concluded that there had been a relative deterioration in the conditions of military life relative to civilian life and therefore recommended a 0.5 percentage point increase in the level of X-Factor from 14 to 14.5 per cent.

3.90. Table 3.1 below sets out the revised X-Factor components. Definitions can be found in Appendix 7.

Table 3 1 Revised X-Factor components

Ø       Turbulence

Ø       Spouse/partner employment

Ø       Danger

Ø       Separation

Ø       Job security

Ø       Hours of work

Ø       Stress, personal relationships and impact of the job

Ø       Leave

Ø       Training, education, adventure training and personal development

Ø       Promotion and early responsibility

Ø       Autonomy, management control and flexibility

Ø       Individual, trade union and collective rights

Ø       Travel to work

 xxxx                                                                xxxx                                                     xxxx

All salaries are annual JPA salaries rounded to the nearest £.

Table 1 1: Recommended annual scales for Officers up to and including Commodore, Brigadier and Air Commodore Rank                                                                          Military salary £
1 Apr 2014				1 Apr 2015
OF-6
Commodore (Royal Navy)	Level 5		103,167		104,198
Brigadier (Royal Marines)	Level 4		102,156		103,178
Brigadier (Army)	Level 3		101,158		102,170
Air Commodore (Royal Air Force)	Level 2		100,156		101,158
Level 1		99,154		100,146
OF-5
Captain (RN)	Level 9		91,466		92,381
Colonel (RM)	Level 8		90,431		91,335
Colonel (Army)	Level 7		89,396		90,290
Group Captain (RAF)	Level 6		88,365		89,248
Level 5		87,334		88,207
Level 4		86,303		87,166
Level 3		85,272		86,124
Level 2		84,236		85,079
Level 1		83,205		84,037
OF-4
Commander (RN)	Level 9		79,524		80,320
Lieutenant Colonel (RM)	Level 8		78,496		79,281
Lieutenant Colonel (Army)	Level 7		77,467		78,242
Wing Commander (RAF)	Level 6		76,448		77,212
Level 5		72,296		73,019
Level 4		71,394		72,108
Level 3		70,491		71,196
Level 2		69,589		70,285
Level 1		68,679		69,366

2-star, 3-star, 4-star and Chief of the Defence Staff pay scales 2015

Recommendation 6: We recommend that the pay scales below apply for 2-star, 3-star, 4-star officers and the Chief of the Defence Staff (CDS) with effect from 1 April 2015.^{1, 2} 

           2-star                      3-star                    4-star                 CDS

Scale point £

6 5 4	122,914 120,555 118,241	157,355 152,845 148,468	190,795 187,054 183,386	260,355
3	115,972	142,856	178,914	255,250
2	113,747	136,174	174,549	250,245
1	111,567	129,811	170,292	245,338

¹ Figures are rounded to the nearest pound.

² This includes X-Factor which is applied at the rate of £2,543, this sum being equivalent to 25 per cent of the cash value of X-Factor at the top of the OF4 pay scale as recommended by the Armed Forces’ Pay Review Body (AFPRB) from 1 April 2015

X-Factor is more clearly explained in the Report of 2019

Page 84

5.16 The X-Factor is a pensionable addition to pay, which recognises the special conditions of Service experienced by members of the Armed Forces compared to civilians over a full career (emphasis supplied).

5.17 In 2008, the SSRB recommended the introduction of the X-Factor taper for members of the senior military. This was in response to the AFPRB’s 2007 review of X-Factor and proposals put forward by the MoD to the SSRB. Prior to this time, no officers above 1-star received the X-Factor. The evidence suggested that members of the senior military were increasingly seeing a deterioration in the overall ‘package’ of life in the Armed Forces and were being deployed more frequently in operational theatres. The SSRB also noted an increase in the number of 2-star officers leaving the Armed Forces. It therefore concluded that both 2-star and 3-star officers should receive an element of the X-Factor.

5.18 The SSRB therefore recommended that 2 and 3-star officers should receive X-Factor at the rate of 25 per cent, phased in over three years.90

5.19 The AFPRB carries out a review of the X-Factor every five years to determine whether the conditions of military life (based on 13 components) persist 91

Footnotes: -

90 The recommendation was for 2 and 3-star officers to receive X-Factor, with payments of 15 per cent of the cash value at the top of the OF4 scale in 2008-09, 20 per cent in 2009-10 and 25 per cent from 2010-11.This recommendation was accepted by the government and the taper has remained unchanged since.

91 The 13 X-Factor components are as follows: turbulence; spousal/partner employment; danger; separation; job security; hours of work; stress, personal relationships and impact of the job; leave; training, education, adventure training and personal development; promotion and early responsibility; autonomy, management control and flexibility; individual, trade union and collective rights; and (whether) travel to work relative to civilian life have improved, worsened or remained the same over the preceding five-year period.

The last review was carried out in 2018 and concluded that there was insufficient evidence for a change. The AFPRB recommended that the X-Factor remain at the existing rate of 14.5 per cent (of base pay). It said that the MoD’s evidence had provided a mixed picture for senior officers across both Review Bodies, with higher workload pressures reported by some while others felt that compensation for X-Factor was sufficient. The AFPRB concluded that, while there was insufficient evidence this year to recommend any immediate change to the tapering arrangements, it felt that the issue merited ongoing consideration.92

Footnote: -

92 Armed Forces’ Pay Review Body Forty-Seventh Report 2018 (paragraph 6.2), “MoD’s evidence to us this year provided a mixed picture for senior officers: higher workload pressures reported by some, whilst others felt that the compensation offered through current X-Factor arrangements were sufficient. While we do not believe that we have seen evidence this year to justify any immediate amendment to the tapering arrangements, we consider that this issue merits ongoing consideration and will seek to explore it further with relevant parties in our forthcoming visits programme. Any work will need to be co-ordinated with the Review Body on Senior Salaries whose remit includes the most senior members of the military.”

Recommendation 11: We recommend that the minimum guaranteed increase to base pay (excluding X-Factor) on promotion from 1-star to 2-star does not fall below 10 per cent.

5.83 We are conscious that if 1-star officers receive a higher pay award than 2-star officers (emphasis supplied), it could lead to an erosion of the minimum 10 per cent increase in base pay on promotion. However, not all 1-star officers are promoted from the top increment on the 1-star scale (108). If different pay awards are made to the AFPRB and SSRB remit groups, the following mitigating options could be taken: Application of a further increase to the lowest 2-star officer pay point.

(i) Removal of the lowest pay point for 2-star officers.

(ii)  Discretionary action to ensure that the minimum 10 per cent increase to base pay is maintained on promotion from 1-star to 2-star for those on the top pay increment before promotion.

108. Paragraph 5.14 notes that data provided by the MoD showed that only four out the 18 officers promoted from 1-star to 2-star in the 12 months from 1 April 2017 to 31 March 2018 were on the top pay increment before promotion.

5.84 We acknowledge that the MoD requested take-home pay be taken into consideration when making our recommendations. We are aware that individuals earning at pay levels between £110,000 and £150,000 face the withdrawal of their personal tax allowance, so that the effective marginal tax rate is 60 per cent. However, it is not in the Review Body’s remit to compensate for income tax, especially where this affects all individuals earning at the same level equally.

[See: https://www.gov.uk/government/publications/armed-forces-pay-review-body-forty-seventh-report-2018.

It explained that any work (by AFPRB) on reviewing the X-Factor taper would need to be co-ordinated with the SSRB.]

Quod Erat Demonstrandum