Currently, the Executive Compensation Benchmark is based on the median amount provided to senior executives in large U.S. corporations. One Senate commmittee says it's growing too much.
A senate committee proposes tying contractor executive pay to the vice president's salary, according to a new report.
The Senate Armed Services Committee recommends in its fiscal 2013 National Defense Authorization Act (S. 3254) that the government change the benchmark for setting the allowable compensation for defense contractor employees. Currently, the Executive Compensation Benchmark is based on the median amount provided to senior executives in large U.S. corporations. The cap stands now at $763,000. Instead, the committee’s defense bill would align the maximum amount of compensation with federal employees, which is set at the annual salary of the vice president. It’s $230,700.
Compensation for the fiscal year includes the total amount of wages, salaries, bonuses, restricted stock, and deferred and performance incentives. Companies can pay their executives as much as they choose, but the government will only cover it up to the $763,000 cap.
In April, the Office of Federal Procurement Policy increased the benchmark from $693,951 to $763,029. In 2004, the government would only compensate an employee as much as $432,851. The cap has climbed 75 percent in eight years.
The committee said it cannot support such large increases.
“At a time when most Americans are seeing little or no increase in their paychecks and budget constraints require the Department of Defense to find efficiencies in all areas, the committee concludes that increases of this magnitude are unsupportable,” according to its report.
The Obama administration has complained about the benchmark and recommended setting the cap at the Executive Schedule Level I, which currently is approximately $200,000. Members of Congress have introduced legislation to set the cap at the president’s salary of $400,000.
Meanwhile, some industry experts say companies could suffer from a tight cap.
“We believe that arbitrarily and drastically reducing the reimbursement cap will hurt the government’s ability to obtain the right skills due to the immense competition for talent with the commercial marketplace,” Alan Chvotkin, executive vice president and counsel for the council, has said.
But he said he wasn’t opposed to revisiting the formula.
The Senate still has to consider the legislation. The House passed its version of the bill in May.
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