DOCUMENT ESUME 04314 - [B33946,5] Department of Defense Pay Practices for German Nationals Should Be Changed. FPCD-77-86; B-179343. December 2, 1977. 1 pp. + appendix (14 pp.). Report to Sen. arren G. agnuson, Acting Chairman, Senate ~um'~Lct.: - ~,~r~ations; by Elmer B. Staate, Comptroller General. Issue Area: Personnel anagement ar£ Compensation (300); Federal Personnel Management and Compensation: Pay Principles and Pay Determination Processes (306);Federal Personnel Management and Compensation: Retirement Policies and Practices (307). Contact: Federal Personndl and Compensation Div. Budget Function: Naticnal Defense: Department of Defense - Military (except procurement & contracts) (051); Income Security: Federal Employee Retirement and Disability (02). Organization Concerned: Department of Defense, Congressional Relevance: House Committee on Post Office and Civil service; Senate Committee on Appropriations. Authozity: Foreign Service Act, sec. 444, as amended. Classification Act of 1949, as amended. P.L. 92-129, sec. 106. The Army and the Air Force employ ever 67,000 German nationals at an annual cost of over 67C million. The Department ot Defense's (DOD's) employment system in Germany is based on multilateral and bilateral agreements and years of precedent and tradition. Although its personnel policies there generally appear in line with prevailing private practices, some aspects of compensation setting and administration should be changed. Recommendations: The Secretary of Defense should: periodically survey wages in the German private sector in order to strengthen the U.S. position in negotiations; periodically survey private sector practices to determine how private industry is reducing over-tariff supplements and adjust DOD's reductions accordingly; examine, with the German Government, labor cost sharing opportunities, such as guaranteeing a minimum exchange rate in billing payrolls; explore methods to increase American hires by assuring that ceilings placed on American hires do not reduce present employment levels, determining the impact on DOD's payroll costs and employment flexibility of a German proposal that provides certain dependents and other Americans with the same compensation as German nationals, and having the Air Force adopt the Army's dependent hiring policy of giving priority to dependents in filling vacant German national positions; and initiate a realistic assessment of the estimated severance liability for both appropriated and nonappropriated fund activities in Germany. (Author/SC) REPORT TO THE SENATE COMMITTEE ON APPROPRIATIONS BY THE COMPTROLLER GENERAL <, : OF THE UNITED STATES Department Of Defense Pay Practices For German Nationals Should Be Changed This report on foreign national employment practices in West Germanv is GAO' third in a series on five countries. It addresses the high cost of compensation benefits and separation allowances, possible substitutes for German nationals, and barriers limiting U.S. control over wage increases. The Army and Air Force empl,, over 67,000 German nationals at 3n annual cost of over $670 million. The Department of Defense's employment system in Germany is base on multilateral and bilateral agreements and years of precedent and tradition. Although its personnel policies there generally appear in line with prevailing private practices, some aspects of compensation setting and adminis- tretion snould be changed. GAO recommends that the Secretary of Defense conduct periodic wage surveys in Germany, reassess severance liabilities, exam- ine labor cost haring opportunities with the German Govermnllit, and explore ways of hiring more Americans. FPCD-77-86 DECEMBER 2, 1977 COMPI ROLLER GENERAL OF THE UNITED STAYE WASHINGTON. D.C. ng&I B-179343 The Honorable Warren G. Magnuson Acting Chairman, Committee on Appropriations United States Senate Dear Mr. Acting Chairman: In response to your request of April reviewing the compensation and use 29, 1977, we are overseas of foreign national employees by he Department the possibility of using alternative of Defense, including labor sources that might be less costly to the Government. We are recommending to the which would reduce local employeeSecretary of Defense changes provide tighter control over such payroll costs and/or costs in West Germany. As requested by your office, we did comments from the Department of Defense; not obtain formal cussed the rsults of our work with however, we dis- Army and Air Force officials in Germany and considered their comments. As agreed with your office. we are sending port to the Department of Defense. copies of the re- available to other interested partiesCopies will also be who request them. Sincerely yours, Comptroller General of the United States APPENDIX I APPENDIX I IMPROVEMENTS NEEDED IN FOREIGN NATIONAL COMPENSATION PRACTICES IN GERMANY BACKGROUND Section 444 of the Foreign Service Act, as amended, provides that compensation for foreign national employees will be based on locally prevailing wage rates that are consistent with the public interest. In Germany an indirect hire system is used as estab- lished by the NATO Status of Forces Agreement of 1951 and later clarified in a 1959 Supplementary Agreement. Although the U.S. Government is the actual employer of the German nationals, these employees are nevertheless considered in- direct hires because ot the German Government's role in se'ting wages and conditions of employment. Detailed em- ployment practices are set out in the Collective Tariff Agreement of 1966 between the unions aid the German Govern- ment on behalf of NATO countries having military forces stationed in Germany--the United States, United Kingdom, France, Belgium, and Canada. In addition, the employees are paid by the German Office of Defense Costs using funds advanced by various Department of Defense (DOD) finance offices. For this service DOD pays an administrative fee equaling 1.25 percent of its total German national payroll, or about $8.4 million in 1977. Pay and benefits under the tariff agreement are renegotiated annually by German labor unions and the German Ministry of Finance, the latter acting as a spokesman for the NATO forces. U.S. policy for local personnel matters in Germany is handled by a Civilian Personnel Coordinating Committee consisting of civilian personnel officials from the Army, Air Force, and the Army and Air Force Exchane a Service (AAFES)--a nonappropriated fund activity which man- ages the post exchanges. The Army employs over 80 percent of the German nationals paid with appropriated funds, and U.S. Army-Europe (USAREUR) has been designated the lead agent in dealing with the German Government on local em- ployment matters. As of April 1977, DOD employed over 67,000 German nationals. This makes it Germany's fourteenth largest em- ployer among industrial corporations and banks. Slightly over 50,000 of the German national employees were paid with appropriated funds estimated at an annual $550 mil- lion. The remainder were paid with nnappropriated funds I APPENDIX I APPENDIX I totaling an estimated $120 million. Under a separate agree- ment, Defense employees in Berlin are paid entirely by the German Government. The table below shows the breakout of German national employees. Number Appropriated Nonappropriiate Employer fund fund Total Army 44,495 2,744 47,239 Air Force 6,419 367 6,786 AAFS - 8,914 8,914 Berlin 4,496 98 4,594 Total 55,410 12,123 67,533 German employee payroll costs have increased signifi- cantly in the past decade. USAREUR estimated the average annual cost per employee has increased from $3,000 in 1967 to over S10,000 in 1977. And, even though the Army's German national strength has been cut by about 20 percent during this period, total German enplcyee payroll costs have more than doubled. Much of this increased cost can be traced to the decline in the value of the dollar relative to the German mark. Since 1973, not only have negctiated pay increases averaged 7.7 per- cent annually, but the dollar has declined an average of 5.4 percent a year relative to the mark. Thus, total payroll costs have increased an average of more than 13 percent a year, and DOD is, to a great extent, at the mercy of dollar fluctuations in controlling wage increases. DOD HAS LIMITED CONTROL OVER PAY INCREASE NEGOTIATIONS In the German private sector, wage or "tariff" schedules are negotiated annually between the labor unions and the ma- jor German industries. Similarly, wage schedules for German nationals are negotiated annually between German labor unions and the erman Ministry of Finance which represents the five NATO countries having troops in Germany. The United States, however, despite having an estimated 60 percent of the total NATO employees in Germany, has limited control over this wage setting process. We believe this control should be strength- ened. The United States has no more power or voting rights in developing an overall negotiating position than any other NATO 2 APPENDIX I APPENDIX I country. Its input into these negotiations is diluted, first in reaching an agreement with the other NATO countries, and then in providing a position acceptable to the Finance Ministry. Also, the Ministry can and does exert consider- ablc influence in reaching a final settlement with employee unions. Because of this limited input and particularly in view of the high payroll cost associated with a final settlement--a 1-percent increase means additional payroll costs of over $6 million a year--it is essential that any U.S. input be based on a sound, independent assessment of German private sector wages. At the time of our review, the United States had conducted an overall wage survey in Germany since 1974.not Army officials indicated such surveys would carry little weight in the egotiations because the unions press for tariff increases reported by the media and the German Government. Recently, DOD has tended to rely on tariff increases published by the news media in preparing for annual negotiations. Despite DOD's inability to directly control wage increases, final settlements in recent years were well below the unions' orig- inal demands and, according to USAREUR officials, were close to the average increases granted by German private industry. We believe that periodic assessments of wages in Germany should add credibility to and thus strengthen the U.S. position in future negotiations. In late October USAREUR began such a wage survey in Germany. This survey is expected to be completed about mid-January. REDUCTIONS IN OVER-TARIFF SUPPLEMENTS SHOULD BE BASED ON PREVAILING PRACTICES Employers in Germany may pay more than the negotiated tariff rates for many skilled positions, especially in the blue-collar trades, such as plumberE and carpeniters. These higher rates--termed over-tariff supplements--are used to establish or maintain pay rates that are reasonably com- petitive with rates paid locally for comparable work. They are intended to resolve recruitment and retention problems in times o full employment and to continue until employets decide that economi2 conditions no longer justify them. In the early 1970s, virtually 11 DOD blue-collar German employees were paid supplements. With higher un- employment in Germany since 1975, however, private industry has been reducing the supplements. Defense has also begun such reductions and has saved an estimated $5.6 million in 3 APPENDIX I APPENDIX I the last 2 years. Further reductions in the supplements will be made this year. USAREUR now estimates that 75 per- cent of its wage earners receive supplements totaling about $9.3 million annually. About one-half of the Air Force wage earners are paid supplements costing about $616,000 annually. We were also told that most new employees do not receive supplements unless they are justified by a separate survey. The amount of DOD's supplement cuts was apparently set without supporting data. An Army official stated that De- fense had not surveyed the rate or extent of the reductions in the private sector. DOD does not want to eliminate the supplements immediately because resultant pay cuts might re- sult in labor problems. Instead, reductions are now linked with annual tariff increases, whereby the decrease in the supplement offsets part of the tariff increases, resu.:ing in lower tariff increases for the affected employees. Air Force officials favor a more rapid reduction but are acceding to USAREUR's request for a more gradual reduction. Local per- sonnel officers were unsure about what the effects of more rapid reductions might be. We believe that periodic surveys of private economy practices are needed to determine how private industry is reducing supplements. This is especially important now, in view of Germany's current employment situation and the potential savings to be derived if prevailing practice sup- ports a faster reduction in the supplements, The recent wage survey initiated by USAREUR will consideL overtariff supplements, and survey teams will try to determine how private industry is handling the reduction. DEFENSE SHOULD SEEK GERMAN ASSISTANCE IN REDUCING PAYROLL COSTS In a June 15, 1977, report 1/ discussing the high cost of te DOD presence in Japan, we recommended that the State Department and DOD examine, among other things, labor cost sharing opportunities with the Government of Japan and dis- cussions between the two governments are currently underway to examine possible alternatives. We believe similar op- portunities exist for labor cost sharing in Germany. l/"The United States and Japan Should Seek a More Equitable Defense Cost Sharing Arrangement," ID-77-8. 4 APP .DIX I APPENDIX I The need for cost reductions in Europe has been recognized by the Congress. The 1974 Defense Appropriation Authorization Act required the President to seek substantial reduction of the amounts the United States pays in budgetary costs as a result of stationing U.S. Forces in Europe. Specifically included as an example, among ther items, were wages paid to foreign nationals by the United States. In our April 28, 1976, report 1/ to the Congress, we took the position that this provision of the law had not been met. The German Government has expressed considerable interest in maintaining the high level of German national employment but has not offered to share or help stabilize the cost of that employment. Part of the cost is due to the de- cline of the dollar relative to the German mark. DOD's German employees are paid by the German Office of Defense Costs, and local DOD finance offices are billed monthly for the estimated payroll. Payments are made in German marks at the then prevailing exchange rate. DOD, which prepares its budgets in dollars at the beginning of each fiscal year, is faced with the problem of predicting oay- roll costs that may vary from month to month depending on he exchange rate. For example, in February 1977 the German na- tional payroll was about 115 million marks, or about $47.9 mil- lion. By July 1977, using the then prevailing exchange rate, the same payroll of 115 million marks would be equal to $50.4 million--a $2.5 million increase. When the dollar's va'ue drops relative to the mark, as it has in 1977, DOD must either obtain supplemental funds or lay off employees to stay within its budget. Because it is in DOD's interest to stabilize costs in Germany's interest to stabilize employment, we believeand that the State Department and DOD should examine, with the German Government, labor cost sharing opportunities, such as guaranteeing a minimum exchange rate in billing these pay- rolls. Any payroll costs incurred because the exchange rate fell below the guaranteed minimum rate would be borne bv the German Government. USE OF LOCALLY HIRED AMERICANS IN LERICAL JOBS SAVESPAYROLL COSTS The Army and Air Force survey their manpower ments and determine those positions that can best require- be filled l/"Additional Costs of Stationing U.S. Forces in Eurone," ID-76-32. 5 APPENDIX I APPENDIX I by German nationals. Many positions are reserved for career U.S. civilian employees because of managerial, technical, or security clearance requirements. The remainder--generally blue-collar and lower graded clerical arid middle manager positions--are designated as foreign national positions and have traditionally been filled by locally recruited Germans or third country nationals. number of these positions, however, are filled by dependents of DOD employees stationed in Germany. The following table shows the approximate number of U.S. Forces dependent hires in Germany. Number of dependent hires (note a) U.S. Poreqgn positions national positions Total Army: Appropriated 3,800 5,800 9,600 Nonappropriated 200 2,000 2,200 Air Force: Appropriated 600 100 700 Nonappropriated 3C0 700 1,000 AAFES - 6,600 6,600 Total 4 900 1520 20,100 a/Includes full-time and part-time personnel as of March- April 1977. On a grade-by-grade basis, American white-collar workers below U.S. Civil Service General Schedule (GS) grade 9 are less costly than German employees in comparable positions. Under DOD's dependent hire program, the Army in Germany has hired many dependents at these levels at considerable savings over both Germans and career U.S. civil service employees. For example, dependents do not receive change-of-station benefits, area differentials, or quarters allowances, and are generally not eligible for civil service retirement. Although German national base pay rates are lower, em- ployer contributions for benefits and allowances cost an additional 31 percent, in contrast with only 6 to 7 percent for locally hired Americans. The table below breaks out annual employer costs for a typical clerical worker at grade GS-4, step 1, and a comparable German employee. 6 APPENDIX I APPENDIX Locally hired German American national Savings from Pay category (note a) (note a) American hire Base pay $8,316 $7,736 $ (580) Bonuses - 644 644 "Property accrual' (note b) - 133 133 Insurance premiums 601 1,558 957 Service charge - 126 126 Total payroll cost $8,91 $10,197 $1,280 a/Represents wage and exchange rates (2.j5 to 1) effective as of June 1977. b/A German savings program required by law under which em- ployers contribute to an employee's investment program. For most DOD employees, this contribution is 312 marks, or about $133 per year. In addition, employing Americans offers other advan- tages. For example: -- German national employees receive as many as 13 paid holidays per year, compared to 9 for U.S. employees; annual leave for German nationals starts with 21 days a year, compared to 13 days for Americans; and German nationals are entitled to as many as 6 weeks of sick leave per illness, compared to only 13 days a year for an American employee. -- German nationals receive faster longevity step in- creases in each grade level, advancing to step 4 in about 8 months while an American advances to step 2. -- Part of an American's pay returns to the U.S. Gover.- ment through income taxes; German nationals pay no taxes to the United States. -- Hiring Americans has much less impact on the inter- nrtional balance of payments because a substantial part of employees' income will be spent in DOD facili- ties, such as post exchanges and commissaries. 7 APPENDIX I APPENDIX I The Army and Air Force (including employ about 15,000 Americans--either AAFES) currently part time or full time in German positions. They face numerous ing the number of locally hired Americans,obstacles in expand- currently employ another 16,000 German even though they clerical positions. Some positions nationals in similar capability or other special skills require German language which dependents and other locally available U.S. citizens possess. Moreover, the political do not generally and cussions of a wholesale shift in hiringlabor relations reper- detrimental. Nevertheless, we believe practices could be increased hiring of Americans is possible, and Air Force that, in some areas, they have an officials have indicated with the needed skills to fill manyadequate pool of dependents of GS-8 level and below. USAREUR, however, their positions at the of the greatest constraints is a shortage believes that one ents in the geographic locations when of qualified depend- considerations and constraints in they are needed. Other hiring additional Americans in Germany are discussed below. Civil Service Commission opposition to the dependenthire program The dependent hi:e program, Civil Service Commission in 1972, which was approved by the allows DOD to give hiring preferences to dependents of overseas other available U.S. citizens. RecentlyDOD employees over tempted to terminate the program. the Commission at-- violate section 106 of Public Law It feels the program may 92-129, which prohibits discrimination in the hiring of U.S. ties overseas. However, because of citizens y DOD activi- opposition raised by DOD, the Commission has extended the authority the legality of the issue is determined until such time as by the Justice De- partment. As of October 1977, the issue has not been re- solved. According to USAREUR, if the giving dependents preferences is special authority for ment will oppose further hiring ofrevoked, the German Govern- dependents in German posi- tions to prevent DOD from also hiring retired military personnel. In the American tourists and past ment has allowed DOD to hire dependents the German Govern- of the need for a supplemental income in tacit recognition stationed in Germany. Without the for service families this permission might be withdrawn preferential program, and DOD might be pres- sured to hire only German nationals. 8 APPENDIX I APPENDIX I German Government seeks to limit dependents in German positions The German Government has already complained about the loss of German Jobs caused formally ents and other Americans in positions by the hiring of depend- mans. It has demanded a limit on such formerly held by Ger- 1977, USAREUR tentatively agreed to limithires, and in early the number of Americans in German positions (Army and priated and nonappropriated fund positions)Air Force appro- below the current level of around 15,000. to 11,0C0--well 1/ The USAREUR negotiator old us that the old" figure was based on estimates available 11,000 'thresh- in early 1977. He pointed out that, if the limit is reached, the agreement would call for meetings to discuss appropriate action--that action could be raising the threshold of dependent hires. As of October 1977, or cutting the number the draft agreement had not yet been finalized. We believe sure that the agreement will not reduce that DOD should as- the current number of dependents. If, as a result o the agreement, to reduce the number of Americans, we it becomes necessary believe that DOD should consider decreasing the number of dependents positions in Germany. The Army employs in blue-collar in these positions, most of which were over 1,700 dependents formerly mans. There is presently a large discrepancy held by Ger- paid to Americans in these positions between rates and rates paid to Ger- mans, primarily because the U.S. overseas ules are based on the average of geographic b.ue-collar sched- age areas in the United States. USAREUR estimated that as much as $3,000 a year for some positions. the difference is If Germans held the 1,700 Army blue-collar Americans, USAREUR would save an positions currently held by estimated $1,761 per em- ployee annually--a total annual savings of over $3 million. An undesirable side effect of the large discrepancy in pay rates is that German nationals complain because American dependents receive substantially same work. This leads to morale problems more pay for the German employees to restrict the hiring and pressure by of Americans. l/This figure, however, includes 4,000 to 5,000 part-time positions held by Americans which the Germans are not concerned about. 9 APPENDIX I APPENDIX I USAREUR is studying an alternative payment met or ep endetsin local posiion Besides requesting a limit on Americans in German na- tional positions, the German Government also proposed that these Americans be administered under the German wage agree- ment rather than the U.S. system. Americans so affected would be paid in marks and receive the same wages and bene- fits as German employees. OSAREUR believes the proposal could have considerable merit. One advantage could be reduced payroll costs. The USAREUR personnel director believes employer and employee contributions totaling 17 percent of compensation earned by German employees would not have to be paid because American employees would already receive such benefits or have no need for them. Examples are health insurance, property accrual bonuses, and unemployment insurance. As a result, USAREUR estimates U.S. Forces in Germany would save about $6 million in 1977 if dependents were paid under German wage schedules rather than U.S. Federal wage plans. Primary savings would be for blue-collar workers who are already paid more than their German counterparts. (See p. 9.) Also, the need for dependent preference authority might be eliminated because all Americans in German positions would become indirect hires--hired by the German Government As such, nondependents would require work permits from tne Ger- man Government, which under current labor conditions could be difficult to obtain. We were told that depen.dents would not need permits or would be issued Epecial permits under a prearranged agreement. Despite the obvious advantages to DOD under such a proposal, the legal and worldwide implications must also be weighed. For example, Americans are currently hired under the authority of the Classification Act of 1949, as amended. While the Department of the Army believes that, as indirect hires, dependents paid under the tariff agreement may not come under the purview of the act, as of October 1977 a final DOD position on the legality of hiring dependents outside the Classification Act had not been reached. DOD would have to negotiate reciprocal agreements regarding collection of income tax and social security ay- ments and on eliminating current employer contributions to German unemployment, life insurance, and health programs. In addition, dependents would receive greater holiday, 10 APPENDIX I APPENDIX I sick leave, and annual leave benefits, and would be repre- sented by German unions and work councils, all of which could affect employee productivity. Army officials be- lieve dependents paid in local currency would continue to spend the same proportion of wages in American exchanges and commissaries; however, the proposal's effect on balance of payments is also a consideration. Under the proposal, German nationals and those Americans covered under the German wage agreement would receive equal pay for equal work. However, the same wage equality would not exist between Americans covered under the German wage agreement and Americans in U.S. positions who continued to be paid under the U.S. system. This could have an adverse impact on the morale and productivity of dependents in Ger- many. We believe that before DOD agrees to the German proposal it should study these implications. The impact on DOD depend- ents in Germany as well as its possible applicability to em- ployees of other U.S. agencies overseas must be determined. Air Force and Army dependent hiiing practices aiffer Army appropriated fund activities employ about 5,900 dependents in German positions, while Air Force appropriated fund activities employ only about 100 ependents. Hiring practices account for the difference. In filling vacant German positions, the Army gives priority to dependents if the position cannot be filled by promoting a German employee. In contrast, the Air Fore hires dependents for German posi- tions only if a qualified German national is not available. Air Force officials told us they have many qualified depend- ents available, but they feel adverse labor reactions would prevent them from adopting the Army's policy. In view of the Army's success in placing dependents in German posi- tions, we believe the Air Force should adopt a similar hir- ing strategy. SEVERANCE PAYMENTS LIABILITY NOT HANDLED CONSISTENTLY The current German national tariff agreement specifies that everance pay will be paid to employees separated by: reductions in force, physical disability, premature retire- ments, illness contracted while on work, or pregnancy. No payments are made if the employee quits or is fired for cause, starts a new job immediately after termination, or 11 APPENDIX I APPENDIX I rejects a job offered to him. The severance entitlement amounts to one-quarter of an employee's latest month's pay for each year of continuous service since 1967. The present maximum entitlement is 2.5 months' pay, and the limit will reach 4 months' pay in 1984. Payments are reduced by the amount of any unemployment or social insurance received by the employee and cease if he begins a new job before he re- ceives his entitlement. Moreover, under an agreement with the German Government, major severance costs incurred be- cause of military movements are paid entirely by the German Government with no cost to the U.S. The limited circumstances under which severance pay- ments are made make budgeting for severance obligations dif- ficult. Army andsAir Force officials could not tell us how much has been paid in severance in recent years, but they believed it was extremely mell and was no drain on their personnel budgets. One local civilian personnel office with severe personnel cuts in renelt years estimated that only 15 employees received severance pay and the total paid was only 30,000 marks (abo it $13,000) from July 1976 to June 1977. Because of the limited liability, Army and Air Force units do not currently accrue and fund their severance pay liability for appropriated funds. The Army, however, requires its nonappropriated fund activities to accrue severance liabilities for all German national employees and to maintain a cash fund covering at least half the total liability. Some revenue producing nonappropriated fund activities, whose financial condition permit, maintain a 100-percent cash fund, and other activi- ties are encouraged to establish up to a 10C-percent fund as financial position permits. The funds estimated their liability at $12 million, and they are required to maintain cash funds of about $6 million to cover it. If needed, U&AREUR headquarters would use cash from nonappropriated fund alcoholic beverage outlets or construction funds to cover the portion of the liability not covered directly by the activities themselves. This policy is aimed at meeting the "worst-case" scenario of all eplolees being separated at one time. It appears to result in an overcommitment of cash funds because, as in the case with appropriated fund employees, many employees would not be eligible for severance pay or wo,ld be paid entirely by the German Governmcnts Air Force officials told us they have no similar requireme-: for their nonappropriated fund activities because of the limited severance liability. 12 APPENDIX I APPENDIX I USAREUR nonappropriated fund officials were not aware of their limited severance liability and their overcommitment of cash funds. One official estimated that only about half their employees would ever have a chance of being paid severance and that the requirement for the individual funds to maintain $6 million in cash reserves could probably be eliminated. The money would then be available for morale and recreation activities. We believe that a realistic determination of the esti- mated severance liability in Germany is needed for both ap- propriated and nonappropriated fund activities. Once that is determined, the question of funding the liability can be ad- dressed. CONCLUSIONS AND RECOMMENDATIONS The Army and Air Force, including the AAFES, employ over 67,000 German nationals at an annual cost of over $670 million. An additional 15,000 U.S. citizens, mostly depend- ents of DOD employees stationed in Germany, are employed in German positions. In general, we believe German nationals are ompensated according to prevailing practice. However, we believe DOD could reduce and/or more tightly control its German national payroll costs. We therefore recommend that the Secretary of Defense: -- Pericdically survey wages in the German private sector in order to strengthen the U.S. position in negotiations. -- Periodically survey private sector practices to determine how private industry is reducing over- tariff supplements and adjust DOD's eductions ac- cordingly. --Examine, with the German Government, labor cost sharing opportunities, such as guaranteeing a minimum exchange rate in billing payrolls. -- Explore methods to increase American hires by (1) assuring that ceilings placed on American hires do not reduce present employment levels, (2) determin- ing the impact on DOD's payroll costs and employment flexibility in Germany of a German proposal that pro- vides certain dependents and other Americans with the same compensation as German nationals, and (3) having the Air Force adopt the Army's dependent 13 APPENDIX I APPENDIX I hiring policy of giving priority to dependents filling vacant German national positions. in -- Initiate a realistic assessment of the estimated severance liability for both appropriated and non- appropriated fund activities in Germany. (963064) 14
Department of Defense Pay Practices for German Nationals Should Be Changed
Published by the Government Accountability Office on 1977-12-02.
Below is a raw (and likely hideous) rendition of the original report. (PDF)