Bump in executive contractor compensation leaves everyone unhappy

The White House's increase of the annual compensation benchmark for contractor executives is unlikely to be the final word on the subject, according to procurement experts familiar with the rules.

In Dec. 4's Federal Register, Joseph Jordan, administrator of the Office of Federal Procurement Policy, said the cap on the amount of contractor executives' compensation that could be billed to government contracts had been raised from $763,029 to $952,308. The higher rate applies to contracts awarded during fiscal 2012. Jordan did not explain why the cap applies to fiscal 2012 and not to fiscal 2014, which began in October.

Agencies have reimbursed contractors for the salaries they pay their executives in one form or another since a 1997 law enabled it. The goal was to keep talented technical leaders interested in complex government contracts rather than losing them to increasingly lucrative private-sector projects.

OFPP is legally mandated to adjust the benchmark using a formula based on the compensation averages of top corporate executives at companies with annual sales of more than $500 million. The benchmark has been rising steadily and has become a target for those looking to trim government excess. The cap was $693,000 in 2010 and rose to $763,029 in 2011.

"Because Congress has not changed or replaced the statutory formula for setting the cap, the [Obama] administration is compelled by statute to raise the cap for another year in accordance with that statutory formula," OFPP's notice states. "In other words, the administration has no flexibility to depart from the statutory requirement that the cap be adjusted annually based on the application of the statutorily mandated formula."

Last summer, Jordon warned that the cap would rise if nothing was done to forestall it. The White House had initially proposed lowering the cap to $200,000 in 2012, and OFPP added a proviso in the pending National Defense Authorization Act (NDAA) that seeks to tie the compensation level to the U.S. president's salary, which is currently about $400,000.

"The timing of this announcement is more than a little curious," said Stan Soloway, president and CEO of the Professional Services Council, in a Dec. 4 statement. "Even as OFPP releases this action, the House-passed and pending Senate defense authorization bills contain provisions to alter the traditional method of calculating the benchmark comparison."

Soloway added that "OFPP has not previously met its obligation to automatically and annually update the benchmark prior to the start of a fiscal year, and thus, we are confused as to why they felt the need to publish this version now as important discussions regarding revisions are underway in Congress."

He told FCW that under the House's version of NDAA, the top five executives at companies making more than $500 million a year would not be eligible for the benchmarked money, but lower-level employees would be eligible for 2011's $763,029 compensation cap.

According to Soloway, the Senate version of NDAA, which has not been approved, seeks to reduce the cap. The bill has a provision that stipulates a cap of $487,000, but an amendment introduced in June by Sens. Barbara Boxer (D-Calif.), Chuck Grassley (R-Iowa) and Joe Manchin (D-W.Va.) would cap the maximum at the U.S. vice president’s current salary of $230,700.

However, others familiar with the legislation say the timing of the White House's announcement could mean that NDAA proposals regarding executive compensation are still fluid or that such measures could be eliminated from the conferenced bill and postponed until next year.

Roger Waldron, president of the Coalition for Government Procurement, said Jordan's announcement that the cap would be more than $900,000 sets the stage for a discussion about a cap based on the president's pay. Sources said if the proposals are not addressed in the final version of NDAA, the issue would probably come up again in the spring as part of new legislation.

"[Jordan's announcement] is about perception," Waldron said. "It's a step to draw contrast" to the lower-priced alternatives that have been proposed.

The issue is a perennial sore point for some lawmakers and members of the public who see it as an example of government excess, and it has become even more controversial as government budgets shrink and federal IT jobs grow more complex.

Waldron and others say the focus on executive contractor compensation could make it difficult to attract the best minds in the private sector to work on increasingly complex federal IT projects, such as HealthCare.gov.