Budget Deal's Lower Contractor Pay Cap Pleases Many

The budget deal passed by the House Thursday includes a compromise on the much-fought-over amount the government may reimburse contractors for executive pay, drawing qualified approval from employee unions and nonprofit critics of current policy.

The bill negotiated by budget committee leaders Sen. Patty Murray, D-Wash., and Rep. Paul Ryan, R-Wis., would lower the cap on reimbursements for an executive’s annual pay to $487,000, about half the $952,308 recently announced by the Office of Management and Budget.

The Senate is expected to vote on the deal next week, but if that $487,000 amount becomes law, it would supersede a proposal for a $625,000 cap included in the National Defense Authorization Act agreement reached by Armed Services committee chairmen from both chambers on Monday.

The budget deal’s figure, however, is still double the cap of $230,700, or the vice president’s salary level, sought in legislation sponsored by Sens. Barbara Boxer, D-Calif., Joe Manchin, D-W.Va., Jon Tester, D-Mont., and Chuck Grassley, R-Iowa, as well as Rep. Paul Tonko, D-N.Y.

OMB, stressing that it was required by law to raise the cap, last May proposed a ceiling of $400,000, equal to the president’s salary. The newly announced $952,308 cap has few defenders -- even among the contracting community.

Federal employee unions were angered by the administration’s move to raise the cap at a time when federal employees have been hit with a pay freeze and rising obligations to contribute to their pensions. Colleen Kelley, president of National Treasury Employees Union, said in a statement she was “pleased to see that a cap on federal contractor compensation is in the deal. While we would like to see the cap set even lower, it is critical that these steps are being taken to address this disparity in contractor compensation.”

J. David Cox, president of the American Federation of Government Employees, said, “AFGE will work to lower the overall amount, which is still too high, and also will work to ensure that there are no unnecessary loopholes or exceptions. Although limiting contractor compensation technically doesn’t ‘score’ for budget purposes, the [Government Accountability Office] estimates that it will save almost $500 million annually, just in the [Defense Department]. Agencies will be better off by being able to rid themselves of ridiculously high compensation for contractor employees.”

AFGE is also pushing for the White House Office of Federal Procurement Policy to issue an interim rule on the cap to ensure that the coming rulemaking to update the Federal Acquisition Regulation “is timely and consistent with law.”

The nonprofit Center for Effective Government said in an analysis by Scott Klinger that the budget deal “targets the wrong crowd…. It is time for Congress to look at waste and excess among government contractors, rather than continuing to punish those who give their lives to public service.” While the bill’s newly lowered cap of $487,000 “would potentially help,” he wrote, ”this only applies to what companies directly charge the government.”

The center’s analysis of retirement accounts of CEOs of the 10 largest federal contractors that report data to the Securities and Exchange Commission found an average monthly retirement check of $236,421. That compares with an average monthly federal pension (in 2011) of $1,383, the center said.

Stan Soloway, president and CEO of the Professional Services Council, a contractors trade group, told Government Executive his group would have been content with the defense bill’s $625,000 cap, coupled with a change in the long-standing formula for setting the cap. “It should be tied to a fair and reasonable level of compensation that protects the government from egregious salaries but enables companies to attract the best talent and put it to work for the government,” he said.

“There’s a disingenuous game being played that compares apples to oranges,” Soloway added. It’s not correct to say an executive “makes a salary of, say, $480,000 a year, when we’re talking about the total cost of compensation.” Using that logic, the proposal by OMB to tie the cap to the president’s salary doesn’t begin to factor in the millions more it costs to compensate the president, he said.

People forget that companies also have to cover the long-term cost of highly paid engineers and researchers who aren’t necessarily on specific contracts, Soloway said. “We have agreed for years that the current formula doesn’t work well,” he said. “Even a handful of outliers with enormous compensation packages yank the average up to the point where it’s ridiculous.”

Another contractors group, TechAmerica, said it “will continue to work the executive compensation issue for our members, but we support the overall legislation because it is such a strong step forward in terms of budget certainty, which is critical to government contractors.”

(Image via Keith A Frith/Shutterstock.com)