Lawmakers urge cap on salary contributions for all contractor employees

Lawmakers are pressuring the so-called supercommittee to bring federal contributions to the wages of contractor employees more in line with the salaries of federal employees. Not just the executives -- all employees.

In an Oct. 12 letter to the members of the Joint Select Committee on Deficit Reduction, Sens. Barbara Boxer (D-Calif.) Chuck Grassley (R-Iowa), and Rep. Paul Tonko (D-N.Y.) said that reining in the amount of money contractors can charge government for salaries would help reduce the deficit.

Current rules impose a cap of approximately $694,000 on the amount charged for compensation (including wages, salary, bonuses and deferred compensation) of their top five employees. The three lawmakers propose lowering the cap to $200,000 and expanding it to cover all of a contractor’s employees. Their concern is that inflated salaries ultimately are passed on to government through higher bids.

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But other lawmakers also see it as a matter of fairness. In an Oct. 13 report to the supercommittee, Democrats on the House Oversight and Government Reform Committee proposed the same cap and reduction, arguing that contractors should feel the same pinch in the pocket that federal employees have.

They wrote that contractor’s executives are paid 64 percent more than the federal employees, citing a recent survey by the Human Resource Association of the National Capital Area.

“Rather than imposing additional cuts to the federal workforce, the Joint Select Committee should reform compensation for federal contractors,” the Democrats wrote.

In September, President Barack Obama made the same recommendation. One administration official called the current compensation benchmark, which is set at about $694,000, “excessive.” And based on the current benchmarking formula, the compensation cap could go as high as $750,000 in 2011.

The Office of Federal Procurement Policy determines the amount of compensation, such as salaries and bonuses, that the government will reimburse for, based on available surveys on executive pay at publicly traded U.S. companies with more than $50 million in annual sales. However, officials have not updated the Executive Compensation Benchmark for 2011, leaving it at the 2010 level.

Importantly, the government cannot tell contractors how much to pay their employees; it can only cap the amount that agencies contribute toward the salaries. The president wants to bring down the compensation cap to $200,000 to match the most senior federal employee’s pay salary.

But some lawmakers want to go further.

“The president’s proposal is a good start, but we encourage you to expand the cap so that it applies to all contractor employees,” Boxer, Grassley, and Tonko wrote in their letter to the super committee.

Congress has already looked at similar compensation expansion proposals. The House and Senate versions of the fiscal 2012 National Defense Authorization Act (H.R. 1540 and S. 1253) have provisions that would extend the compensation cap. The House wants the cap to cover “any individual performing under the covered contract.” The Senate has proposed extending it to all company executives and managers.

Industry is objecting though. These potential cuts and caps could exacerbate problems with recruiting talented employees, particularly when pay is better outside of the federal marketplace. Agencies already face enormous challenges to get such talent with government salaries.

Extending those same limits to government contractors will simply put companies in the same predicament, said Stan Soloway, president and CEO of the Professional Services Council.

Further, the government has authority to call out a company for excessive wages.

Soloway said the executive compensation caps are just that—caps on reimbursement. They represent the maximum that can be charged to the government. But the actual amount an individual company can charge to the government is tied directly to what the government determines is fair and reasonable for a company of a similar size in a similar market.

Federal officials already have the right to reject to a contractor’s wages, and they frequently do, Soloway said.

“Arbitrarily tying salaries to a wage scale that most objective observers agree is well below that which is available throughout the remainder of the economy, is short-sighted and illogical,” he said.

The supercommittee’s bipartisan recommendation will receive an up-or-down vote in Congress before Dec. 23.

About the Author

Matthew Weigelt is a freelance journalist who writes about acquisition and procurement.

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Government Cyber Insider tracks the technologies, policies, threats and emerging solutions that shape the cybersecurity landscape.


Reader comments

Mon, Oct 17, 2011

As long as the contracts are based on competative bids, the Feds have no business dictating the top salaries in the companies they hire. It is irrelevant to the contract and also overreaching in its power to have government dictate high salaries set by a private company. However, it does have the right to set how much it pays for the contract - and the companies can refuse to take the contract. We are still a Constitutional government, not a dictatorship. The more you allow restictions on choices for the private citizen or company, the more restrictions will be made and everyone will see their choices curtailed. That is the trickle down effect you will see.

Fri, Oct 14, 2011 RT

Save us from the Ivy League MBAs!

Fri, Oct 14, 2011 A fed

Wage and price controls never work. They only make the commodity or talent harder to find and ultimately more expensive. So, if you are peeved about your fed salary being lower, why don't you go work for the contractor? Oh, its because you have that job for life, not just to the end of the contract. This is the dumbest idea yet. The only good thing is the lawyers will get scalped for once.

Fri, Oct 14, 2011

Don't be ridiculous, the Government does have the right to set limitations on what it will pay. Who better to do this than Congress who is not likely when they choose to not succumb to political pressure. These limitiations would also work for fixed priced contracts. In case people have not noticed companies are tightening their belts and sending jobs overseas. Contractor employees are lucky like Feds to even have a job. If the gravy train is over for Feds, it should be over for the contractors too. Congress and their mouthpiece private citizens are screaming to cut costs. The contractors need to share in the pain too since in most cases they are getting substantial dollars. If the contractor citizens don't like it, then tell Congress and their mouthpiece private citizens to get off the Government's back. After all maybe they can convince the majority party in Congress that yes the Government is a job creator and provides valuable services through not only direct employment but also contracts, contrary to popular belief.

Fri, Oct 14, 2011 jw AL

ROFL!!!!! Listen to those contract employees whine. Especially the execs. They won't be lobbying so hard if they won't be paid so doggone much. And you clueless soul, most contractor employees already get very similar health and retirement benefits as federal employees. The difference in those hourly costs is what the middleman(contractor) pockets after they pay administrative overhead(middle management). The lower the Admin. cost the higher the profit.

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