White House targets 'excessive' contractor pay

The Obama administration has proposed changing how the government sets limits on the reimbursement of salaries of contractor companies’ senior executives.

The current formula for reimbursement sets the cap using a survey of commercial compensation but the administration wants to tie the cap  to the salaries of senior-most federal officials — specifically, Executive Schedule Level I, which currently pays $200,000 a year, according to the White House’s economic proposal released Sept. 19, “Living Within Our Means and Investing In The Future.”

Congress will have to pass new legislation to make the change.

The Office of Federal Procurement Policy is legally required to determine 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. It’s called the Executive Compensation Benchmark.

In 2010, the OFPP allowed reimbursements for a contractors' top five executives to reach a total of $693,951. The Obama administration now is concerned that, based on surveys, reimbursements could reach $750,000 in 2011.

“It’s that payment that strikes us as excessive,” Dan Gordon, administrator of the OFPP, said Sept. 20.

He testified before the Senate Homeland Security and Governmental Affairs Committee’s Oversight of Government Management, the Federal Workforce, and the District of Columbia Subcommittee.

Gordon said no one anticipated that the salary cap would increase as quickly as it has when the formula was designed. But at a time when federal employees’ salaries are frozen, “it seems unreasonable to continue to dramatically increase the amount that we compensate.”

So now, the administration wants to reset the Executive Compensation Benchmark to equal out pay between federal and contractor executives’ compensation.

“Just as the government must be prudent in paying federal employees, it must also not overpay contractors,” the White House wrote.

One industry group objected to the new proposal, saying the administration wants to tie together two unrelated salary caps.

“It inappropriately ties company executive compensation to irrelevant government executive compensation levels,” said Stan Soloway, president and CEO of the Professional Services Council (PSC).

“If companies and government agencies are to attract the best and brightest executives, which would certainly be in the best interests of both sectors, then they need to be able to be competitive in the marketplace,” Soloway said. To do that, the executives’ compensation should be tied to the commercial sector.

The administration's proposal could not be changed through regulatory changes, but would require Congress to pass legislation.

The PSC wouldn’t speculate on the likelihood of the proposal making it through Congress.

In a similar matter, 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 for defense contractors. 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.

The House and Senate Armed Services Committees raised concerns with audits at the Defense Department showing some defense contractors paying employees more than the benchmarked amount because those individuals were not executives. The committees believe their provisions would take care of that.

The House passed its defense legislation in May, but the Senate has not passed its version.

About the Author

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

Reader Comments

Fri, Jan 27, 2012 Huntsville Alabama

This is just another way for the Obama socialists to create another front for class warfare. It is perceived that nobody likes Corporate CEO’s who fly around in jet planes. Now they want to show how they make more money than they are worth. I don’t see why they don’t go after Hollywood celebrities and sports figures. How about a salary cap on sports/athletes. That way the “average Joe” could afford to go to a ball game. Movies are to expensive too….

Fri, Jan 27, 2012

I agree with the last comment. The top level executives at large contractors never bill the contract. This legislation might put a ceiling on the rates of some mid-to-high level managers, but those rates are typically negotiated in the contract. I cannot see how it will effect the salaries of the presidents, vp's, and CxO's of any of the companies its aimed at.

Fri, Oct 7, 2011

I am not sure that the executive salary has to do with the work on the contract... How many senior executives actually bill the government? Usually, even a division director is not directly billable, but overhead. This means that their salaries come from the overhead generated by billable employees, same as HR, IT, Accounting, etc.... in that case, why does it matter? Government can and does control how much it pays to contractors that are billable, but what does overhead spending have to do with it?

Sun, Sep 25, 2011

Oh, for those idiots posting, you're saying it is okay to hold civil service salaries down in the gutter, but not contractors? I guess the only people posting on here are Contractor Executives. Well, I say, up yours!

Fri, Sep 23, 2011 Mark

I'm sorry, but this is a good thing. This said, it is coming after the fact the White House basically directed $200+ million in loans to a failing solar company, has pushed for more spending than God, and then putting the Feds on the pyre for his own political gain. I would like to see the White House talk about how the Executive Branch is saving money to show they are eating their own dog food.

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