'Outdated' contractor pay cap raised 10 percent

The government now will compensate a federal contractor’s top five senior most executives up to $763,029 annually, the Obama administration announced April 23, an increase that White House officials and some lawmakers have tried to cap at a much lower rate.

The cap, known as the Executive Compensation Benchmark, now increases by nearly $70,000 from $693,951 — 10 percent higher than in fiscal 2010.

The law requires the administrator of the Office of Federal Procurement Policy (OFPP) to set a benchmark yearly at which the government will reimburse a company for its top five executives.

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.

The compensation amount applies to the executives throughout a company’s fiscal 2011, but Congress changed the law in 2011 to put all contractor employees under the cap starting in 2012.

Although the benchmark is set at a certain level, companies can pay their executives more than that amount. But the government will now only reimburse a company up to $763,029 each year per top five executives.

The compensation-cap controversy has attracted a lot of attention within the Obama administration and in Congress in nine months. Administration officials warned of the impending large increase, even as 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In the post, she urged members of Congress to fix the “outdated” benchmarking law.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.

President Barack 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 of 2012 (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.

It found that  a company with between $51 million and $100 million in annual revenue, the highest paid executive earns an average of $380,000 per year. At companies with more than $100 million in revenue, the highest paid executive earns an average salary of $600,000.