NEW YORK (AP)  -- New York Police Department officers won a 9.7 percent retroactive pay hike on Monday in a decision that also gave rookies a $10,000 annual salary boost.

City officials said the ruling by a state arbitration panel offsets the raise with 2.8 percent in annual savings, including cuts in vacation days and overtime.

The decision erases another Public Employment Relations Board decision in 2007 to slash entry-level pay to $25,100 _ compensation so low it hurt recruitment at the 36,000-officer department, the nation's largest, and became a symbol of the bitter labor dispute. Officers hired under the terms of the previous contract could be eligible for several thousand dollars in back pay.

``While we wished the starting pay was higher, this is a step in the right direction,'' said Police Commissioner Raymond Kelly.

Rookies will start at $35,881 a year, while top pay for veteran police officers will jump to $65,588 from $59,588.

The arbitration panel stepped in after the powerful Patrolmen's Benevolent Association rejected a city offer of a two-year raise of slightly over 6 percent _ comparable to deals with other municipal unions. The PBA wanted 10 percent with no so-called ``givebacks.''

The police union, with 23,000 members, has complained for years that its members are vastly underpaid compared to officers in other large cities and in suburbs on Long Island and elsewhere. It claims that hundreds of police officers have resigned to take jobs with higher-paying forces.

PBA President Patrick Lynch praised the ruling for giving the officers a higher raise than other city workers. But, he added, it ``does not go far enough toward making our pay competitive with other police departments.''

Mayor Michael Bloomberg said the deal would increase productivity while giving ``our dedicated and hardworking police officers much deserved raises.''

The pay hike covers August 1, 2004 through July 31, 2006, meaning a new contract still must be negotiated.