The Department of Defense Education Activity (DODEA) oversees all DOD schools in the United States and abroad. The Department of Defense Dependents School System (DODDS) is the entity within DODEA that manages DOD’s overseas schools. In school year 2001-02, DODDS operated 155 schools in 14 countries (see figs. 1 and 2) and employed roughly 6,200 educators, including both traditional classroom teachers and instructional staff, such as school psychologists, nurses, and counselors. Classroom teachers comprise over 90 percent of all DOD overseas educators. They are represented by two different teachers’ unions: the Federal Education Association (FEA) and the Overseas Federation of Teachers (OFT). Although classroom teachers and instructional staff are paid on different salary schedules, both groups are subject to the same salary determination and payment process. Legal requirements and union arbitration agreements form the basis for the DOD overseas teachers’ salary determination process. Prior to 1959, teachers in DOD overseas schools were paid according to the General Schedule, the standard pay schedule for many federal government employees. These salaries did not reflect teachers’ academic backgrounds or qualifications. As a result, DOD overseas teachers’ salaries were significantly lower than those paid to public school teachers in the United States. Congress attempted to remedy these inequities in 1959 by passing the Defense Department Overseas Teachers Pay and Personnel Practices Act (Pay and Personnel Practices Act). This law directed the heads of each military department in DOD to fix rates of basic compensation “in relation to the rates of basic compensation for similar positions in the United States.” However, these rates of compensation could not exceed the highest rate of basic compensation for similar positions of a comparable level of duties and responsibilities under the municipal government of the District of Columbia. Upon passage of the Pay and Personnel Practices Act, DOD officials met with representatives of the Overseas Education Association (OEA) and the National Education Association (NEA) to develop procedures governing its implementation. In 1960, these parties agreed to establish an annual review of compensation schedules as compared to the rates of compensation in urban school jurisdictions with populations of 100,000 or more. Although all parties agreed to this process, annual per-pupil spending limitations enacted by Congress effectively lowered the compensation paid to DOD overseas teachers below the salary schedule devised through the annual review. To correct this problem, Congress amended the Pay and Personnel Practices Act in 1966 and set into law the procedures that DOD and the teachers’ associations had agreed to in 1960. The amendment provides that DOD fix the basic compensation for overseas teachers at rates equal to the average of the range of rates of basic compensation for urban school jurisdictions with populations of 100,000 or more. Since 1966, the DOD overseas teachers’ salaries have been the subject of numerous legal actions. Among the most significant for their impact on DOD’s salary determination and payment process are a class action law suit in 1973 and an arbitration decision in the early 1980s. In 1973, seven DOD overseas teachers sued the U.S. government, claiming that DOD’s methods for determining teacher salaries were inconsistent with the Pay and Personnel Practices Act. Specifically, the teachers argued that DOD’s process of determining teacher salaries based on the previous year’s salaries in U.S. school jurisdictions resulted in salaries unequal to those paid to teachers in the United States. The court ruled that timing was an essential component of compensation and that, therefore, salaries used for comparison purposes should be from the same school year. The result of this court case was the establishment of the payment system that DOD currently uses to determine and distribute salary payments to DOD overseas teachers. In 1982, an arbitration decision was issued, which resolved a grievance the OEA filed relating to the salary schedule that had been set for school year 1979-80. In part, the OEA contested DOD’s use of an August 1, 1979, cut-off date for salary data because it excluded the salary increases that many U.S. school teachers received in the second half of the school year. The arbitrator held that by using the August 1 date, DOD did not meet the statutory requirement that it set salaries “equal to the average of the range of rates” of the group of teachers identified in the statute. Subsequently, DOD and OEA reached an arbitration agreement, which requires DOD to collect salary information for its annual survey through at least January 10 of each school year. The Department of Defense Civilian Personnel Management Service, Wage and Salary Division conducts this survey and generates the DOD overseas teachers salary schedule each year. The DOD overseas teachers’ compensation package, which includes salary, benefits, and allowances, is set by law and regulations and generally compares favorably with U.S. teachers’ compensation. Since 1966, DOD overseas teachers’ salary schedules have been set equal to average teacher salaries in school districts in incorporated places with 100,000 or more people. Their benefits are set by regulations published by the U.S. Office of Personnel and Management (OPM). DOD overseas teachers also may receive allowances determined by the U.S. Department of State and additional services, such as access to on-base gyms and social clubs. The compensation package generally compares favorably with compensation for U.S. teachers. Starting and average salaries for DOD overseas teachers are higher than those of teachers in the United States. U.S. teachers typically do not receive the allowances and services that many DOD overseas teachers receive. While the compensation package generally compares favorably with that of U.S. teachers, it appears that many teachers are dissatisfied with access to health care in many overseas locations. The Defense Department Overseas Teachers Pay and Personnel Practices Act, as amended in 1966, requires that DOD overseas teachers’ salaries be equal to average salaries in U.S. urban school districts. DOD overseas teachers are paid on a salary schedule, which reflects both their level of education and years of experience. (See table 1 for the school year 2001-02 salary schedule.) As federal civilian employees, many DOD overseas teachers are eligible for a variety of other benefits in addition to basic compensation (salary). In general, federal civilian employees are eligible to participate in the Federal Employees Health Benefits (FEHB) program and the Federal Employees Group Life Insurance (FEGLI) program and are covered by the Federal Employees’ Retirement System (FERS), which includes the Thrift Savings Plan (TSP). However, not all DOD overseas educators are eligible for these benefits. The type of appointment a teacher holds can alter the benefit package he or she receives. For example, federal employees hired as temporary employees with appointments not to exceed 1 year are not eligible for health insurance. Although DOD overseas teachers hired in the United States are mostly permanent employees and therefore eligible for all benefits, local hires (teachers residing and hired abroad) are often employed under time-limited appointments. However, local hires who are on time-limited appointments can be converted to permanent appointments once they meet all requirements, which allows them to receive full benefits. In addition, almost all local hires are spouses of military and DOD civilian personnel and thus receive these benefits indirectly through their spouses. In addition to salary and benefits, some teachers are also eligible to receive allowances such as a living quarters allowance, a post (cost-of- living) allowance, and the cost of shipment of household goods and an automobile. These additional allowances are the same as those available to other DOD civilian employees stationed overseas and similar to those available to other federal employees stationed overseas. These allowances are primarily governed by regulations set by the Department of State.DOD has some flexibility to limit these allowances, but may not exceed the scope of the regulations set by State. For instance, although State allows civilian employees overseas to receive an education allowance, the wardrobe portion of Home Service Transfer Allowance, and the wardrobe portion of the Foreign Transfer Allowance, DOD overseas teachers do not receive them. See table 2 for an explanation of each allowance available to DOD civilian employees stationed overseas. Generally, these allowances are available only to teachers who are recruited in the United States. These allowances (except post allowance and danger pay, which all teachers are eligible for, regardless of where they are hired) are not considered salary supplements or entitlements. Rather, they are intended to be recruitment incentives for U.S. citizen employees living in the United States to accept employment in foreign areas. In each of the last 2 years, over 90 percent of locally hired teachers were spouses of active duty military or DOD civilian employees. Thus, though these teachers may not be eligible for these allowances in their own right, they do receive them through their spouses. Furthermore, locally hired teachers may become eligible for these allowances if transferred to a new post. DOD overseas teachers’ salaries compare favorably to U.S. teachers’ salaries. On average, salaries for teachers in DOD overseas schools are higher than the U.S. national average teacher salary. The average salary in DOD overseas schools for school year 2000-01 was $47,460, while the national average for the same year was $43,250. On a comparative basis, the average DOD overseas teacher’s salary ranked the twelfth highest among average teacher salaries in the 50 states and the District of Columbia for school year 2000-01. (See table 3.) In the same year, the starting salary for a DOD overseas teacher with a Bachelor of Arts (BA) degree ($30,700) was 6 percent higher than the average starting salary in the United States ($28,986) for a teacher with a BA.