Department of Defense Is Overcompensating Its Foreign Employees

As of January 1, 1978, the Department of Defense (DOD) employed about 151,800 foreign nationals at foreign installations, including about 121,200 paid from appropriated funds. Almost 90 percent of the employees were located in five countries--Germany, Japan, Korea, the Philippines, and Italy. The Foreign Service Act provides that compensation for foreign national employees will be based on locally prevailing rates and practices consistent with the public interest.

Compensation adjustments for foreign national employees are generally determined by two methods: periodic wage surveys as in Korea, Italy, and the Philippines; and government-to-government negotiations as in Japan and Germany. To establish comparability with the private sector, DOD annually adjusts the value of regular pay items but considers and adjusts benefits separately. Combined analysis of pay and benefits would give DOD more flexibility to follow changes in private sector practices. DOD is restricted from paying prevailing rates because: (1) compensation under indirect hire systems is based on government-to-government negotiations rather than the more objective results of wage surveys; (2) outdated labor agreements contain concessions written when labor costs were relatively inexpensive; and (3) political sensitivities and/or influential labor unions limit opportunities for corrective action.

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