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Acquisitive Mind

By Matthew Weigelt

Blog archive

Will Congress cap executives' compensation?

Senators won’t stand for paying out too much money to what they consider overpaid executives at defense contractor companies. Will the House agree?

The Senate approved an amendment Dec. 1 to the fiscal 2012 National Defense Authorization Act capping what a company can charge the government for each of their top five executives’ compensation. The compensation can include salaries, bonuses and other similar benefits.

The amendment prohibits executives from receiving more compensation from the government than the nation's Commander-in-Chief.

“Taxpayers should not be on the hook for exorbitant government contractor salaries,” Sen. Barbara Boxer (D-Calif.) said on Dec. 1. She was a sponsor of the amendment.

Currently, contractors can charge the government as much as $693,951 annually for their top five executives. This cap is called the Executive Compensation Benchmark. The benchmark will very likely be expanded well beyond the top five. The benchmark is set based on what the top private-sector companies pay their executives. However, the Obama administration has said the compensation amount is excessive, especially if the benchmark goes up to $750,000, as it could based on the most recent private-sector pay. (Get more information on pay changes.)

Meanwhile, President Barack Obama gets an annual salary of $400,000, although he gets more benefits, such as free housing in a pretty big house and a nice travel budget.

It’s still not right for the government to pay private-sector executives so much money, said Sen. Chuck Grassley (R-Iowa), another sponsor. This provision directs limited tax dollars to places other than contractors’ pay. Indeed, it “goes after an unnecessary expenditure by containing runaway spending in a type of contract used extensively by the Department of Defense,” he said. (More urges to cap compensation.)

However, contractors have a rationale for asking for the money. Industry groups say defense contractors may look less attractive to potential talented employees than other companies. The best workers may go elsewhere because they can earn more than what the federal marketplace offers them.

“Defense companies must compete for talent with commercial companies, and considering that the market drives such compensation, costs—with the exception of the top five executives—should be based upon the ‘reasonableness’ standard that has always existed,” wrote the Acquisition Reform Working Group, a conglomeration of organizations.

The compensation cap amendment was passed by voice vote, and the defense authorization legislation passed the same day by a vote of 93 to 7.

The House didn't include such a provision in its verison of the authorization bill. Both the House and Senate expanded the compensation benchmark to all contractor employees "performing under the covered contract." Currently, the benchmark covers the top five executives at a company. However the House didn't lower the compensation cap.

The House and the Senate now have to work out their differences between their versions of the legislation. The question is, will the cap make it into the final version of the bill?

Posted by Matthew Weigelt on Dec 02, 2011 at 12:32 PM


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Reader comments

Mon, Dec 5, 2011

Tax payers should be on the hook for exorbitant congressional salaries, especially when the can retire after what 6 years or is it 4? I don't know of any company executive that can do that.

Mon, Dec 5, 2011 SoutheastUS

Don't single out government contractors. All corporate executives are overpaid. Set up the corporate income tax so that companies whose executives make more than 100 times the lowest paid employee pay a 95% income tax. Only allow "applied research" deductions against that [applied research would be expenses for the previous 5 years that result in a new product or manufacturing process AND it is implemented only in the US so the US gets the jobs - otherwise no deduction]. Scale that down to that if the highest paid executive only makes 10 times more than the lowest paid employee, they pay 5% and get the same deductions as are currently in place. Such a new tax structure would be good for small business, good for the family unit, and should reduce some of these high executive salaries making the affected government contracts less expensive.

Mon, Dec 5, 2011 Bill

You gotta love this! This same airheads that rail against Federal employee pay say, "Industry groups say defense contractors may look less attractive to potential talented employees than other companies. The best workers may go elsewhere because they can earn more than what the federal marketplace offers them." How do you think Federal employees feel you idiots? You try to cut our pay then overpay contractors? If anything, contractors should be paid LESS than the comparable Federal employees. Limit the executive compensation to $300K. That's still a lot of money and it will help a lot towards balancing the budget!!

Mon, Dec 5, 2011 Federal Worker

Contract costs are out of control. Outside of executive compensation, less qualified individuals working alongside GS folks in my sector make as much as 40-50K more than the GS worker perfomring the same jobs. Federal supervisors prefer the contract folks over GS employees because they are easier to fire for non-performance. However, the taxpayer remains on the hook for excess salaries and benefits.

Mon, Dec 5, 2011 Olde Sarge DC

Dfense companies are commercial companies! Each and every one of them is a private or publicly held corporation with no government ownership. They all have shareholders or partners. They all operate for a profit. And so-called defense companies, at least the larger ones, are really quite diversified. They learned that lesson decades ago following Vietnam. Their other lines of business may still be civil government related, but they are not defense. All that said, the government should not be encouraging the outrageous salaries being paid to corporate executives. Government contracts are still the lion's share of the market for government contractors. They compete against each other for the contracts, not some ephemeral 'commercial' business. The government should not compensate businesses for salaries in excess of what government top executive earn. Where do you think the outrageous salaries came from in the first place? Government encoured them by compensating for them. It is high time these folks got taken down a notch or two. By the way, the US is still the world's largest consumer of technology. Whe else are they going to sell to? Sensitive technology can't be exported in the first place. CAP THE COMPENSATION AGAINST EQUIVALENT GOVERNMENT SALARIES!

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