Obama administration fails in its effort to reduce contractor executive compensation in contracts.
The cap that limits the government's payments to compensate contractors' five most senior executives has risen after all, the Obama administration announced April 23.
The cap, known as the Executive Compensation Benchmark, rose by nearly $70,000 from $693,951 to $763,029 annually
The law requires the administrator of the Office of Federal Procurement Policy to set a benchmark yearly at which the government will reimburse a company for its top five executives. The Obama administration had sought to reduce it by tying it to federal salaries.
Compensation for the fiscal year includes the total amount of wages, salaries, bonuses, restricted stock, and deferred and performance incentives. OFPP determines the amount based on surveys of private-sector executives at companies with more than $50 million in annual revenue.
Companies can pay their executives as much as they choose, but the government will only cover it up to the cap.
The compensation cap controversy has attracted a lot of attention within the Obama administration and in Congress over the past nine months. Administration officials warned against raising the cap while federal employees were under a pay freeze.
The Office of Management and Budget “will soon be forced to publish a notice in the Federal Register that raises the cap even higher—tens of thousands of dollars above what it was in 2010," Lesley Field, acting OFPP administrator, wrote in a OMBlog post Jan. 31, foreshadowing today’s announcement.
In the post, she urged members of Congress to fix the “outdated” benchmarking law.
The administration proposed abolishing the formula and instead tie the cap to the salary of senior-most federal officials.
Obama wants to set the cap based specifically on Executive Schedule Level I salaries, which currently are approximately $200,000. Obama offered the suggestion in September in his plan for economic growth and deficit reduction.
In an April 23 Federal Register notice, OFPP wrote that the growth in the benchmark has outpaced the rate of inflation from 1995 onward and growth in federal and private-sector salaries in general.
The new benchmark is “forcing our taxpayers to reimburse contractors for levels of executive compensation that cannot be justified for federal contract work,” OFPP officials wrote in the notice.
Senators are attempting to get the benchmark changed.
While the Senate’s Fiscal 2012 National Defense Authorization Act included a cap on contractor compensation for salaries, that provision failed to make it into the final version of the law. The law did however, expand the cap to include all contractor employees, not just the top five executives.
As a result, Sens. Barbara Boxer (D-Calif.) and Chuck Grassley (R-Iowa) introduced the Commonsense Contractor Compensation Act (S. 2198) that extends a $400,000 cap which would to cover all contractor employees and equals the president's $400,000 annual salary. But the bill has not been passed.
As for actual salaries, Grant Thornton surveyed more than 100 companies in 2011 for its annual report on government contractors and reported average salaries for executives.
The survey found that a company with between $51 million and $100 million in annual revenue, the highest paid executive earns on average $380,000. At companies with more than $100 million in revenue, the highest paid executive earns on average $600,000.
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