Defense panel rejects Obama cap on executive pay

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Under current law, the government reimburses defense contractors for executive pay. The amount repaid to the top five executives at a defense firm is limited by a formula that is tied to rates in the private sector.  

Obama wants not only to lower the cap, but also to extend it beyond the defense industry. His budget office this week plans to push a new proposal to House and Senate leaders that would cap pay for all government contractors. 

The Obama proposal is more generous than other liberal proposals that would cap pay at the level pay of Vice President Biden’s $230,000 salary.

McKeon’s draft Defense bill rejects both ideas.

“The Chairman’s mark rejects calls by some to cap individual industry salaries at the President or Vice President’s salary level. The Chairman believes this is an inappropriate and arbitrary comparison that will drive talent from the nation’s defense industrial base. Instead reform should focus on reasonable expenses given the market conditions that determine what a contractor needs to pay to recruit and retain talent,” a staff summary of the bill states.

McKeon's bill would end the current formula for defense pay, which the White House estimates will rise to a cap of $950,000 later this year.

His plan would tie future increases in the cap to the Bureau of Labor Statistics employment cost index, which grows less quickly than a formula linked to executive pay alone. It would also disallow federal reimbursement for top five executive salaries at the very biggest contractors. 

A senior House Armed Services aide said it was “almost certain” that their provision, or something similar to it, would be signed into law, contrasting it to other “draconian” proposals, such as one from Sen. Barbara Boxer (D-Calif.) to set the limit at the level of Cabinet secretaries. 

The measure had the support of Smith, the panel’s ranking member, according to the aide. 

“We recognize that the current system has become dysfunctional and a bad deal for the taxpayer and for the industrial base, so our approach rationalizes the system in a way that makes sense,” said another committee aide.

The aide said the proposal was in the works before the White House announced last week that it would be renewing its push for a lower cap. 

“This is something we have been working on for some time, so it is not a response to the OMB [Office of Management and Budget] proposal — though we do disagree with their approach,” the aide said.

The White House on Monday reacted by saying its proposal is superior to that of the Armed Service Committee.

“The Administration believes that the reimbursement cap’s current statutory formula should be replaced with a lower, more sensible limit that is on par with what the government pays its own executives and employees and should apply across-the-board to all defense and civilian cost-reimbursement contracts.

"Tying the cap to the President’s salary provides a reasonable level of compensation for high-value federal contractors while ensuring taxpayers are not saddled with paying excessive compensation costs," said Joe Jordan, the administrator of the Office of Federal Procurement Policy at OMB.

Jordan added that the proposal contains exceptions for high skilled workers as needed.

The Professional Services Council, which advocates on behalf of contracting companies, is withholding judgment on the McKeon language, President Stan Soloway said Monday.

"We are going to withhold our opinion until it comes out of committee and goes to the floor...this is going to be a long process," he said. 

The group opposes the Obama plan but has said it is open to keeping the current cap and adjusting the formula going forward. 


— This story was updated at 3:51 p.m.