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 A broad budget bill that won approval by the House of
Representatives on Thursday would lower the cap to $487,000 a
person, down from its current level of $952,000. The Senate is
expected to pass the bill next week.
The measure would be a partial victory for the White House, which
for years has sought to rein in contractor reimbursements that fund
salary and other personnel costs. In May, the White House proposed
limiting the reimbursement level to $400,000 a person — the amount
Barack Obama earns as president.
At least 616 employees at contracting companies earned more than
that last year, according to the Government Accountability Office.
The measure would apply to "cost-plus" contracts, which reimburse
companies for work expenses plus a profit, but not to fixed-price
contracts. Cost-plus contracts constitute about 40 percent of the
$500 billion or so the government spends each year on goods and
services.
Contracting companies like Lockheed Martin and SAIC may pay
employees as much as they wish, but they are not reimbursed for
salary or benefits exceeding the federal cap.
The cap was first set at $340,650 in 1998 and has risen dramatically
since then, as has private-sector executive pay used as a
comparison. The current formula is based on the median salary of the
top five executives at some 3,000 public companies with revenues
over $50 million.
The cap has more than tripled since 1998, far outpacing inflation
and salary increases for non-executive employees. The earnings gap
between contractors and federal employees has widened further in
recent years because of a congressionally imposed wage freeze on
government workers.
The budget bill that passed the House would lower the cap to
$487,000 — equal to the original 1998 level, adjusted for inflation.
Further increases will be based on the U.S. Employment Cost Index,
which measures the growth of overall employee compensation, rather
than executive salaries. "I think we can all say with a straight face that's reasonable,"
said Scott Amey, general counsel for the Project on Government
Oversight, a watchdog group. "I'd still like it to go a lot lower."
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COMPETING FOR TOP TALENT
Contractors agree that the current cap is excessive. But they argue
that lowering the cap could make it difficult for the government to
compete for top-level private sector talent, especially in
technology.
"We've recognized for a long time that the formula wasn't working,"
said Stan Soloway, president of the Professional Services Council, a
trade association for government contractors. "But when you get up
the food chain, the compensation is not equal to what's offered
elsewhere."
Soloway said his group would have been satisfied with a higher cap
of $625,000, which was included in a bipartisan defense-policy bill
introduced on Monday. That proposed level was rendered moot by the
budget bill.
The White House said that it supports the $487,000 cap, although it
does not go as far as it had hoped.
"We are pleased that Congress is taking action to address the
unjustifiably high contractor executive reimbursement required under
current law," said Steve Posner, a spokesman for the White House's
Office of Management and Budget.
(Reporting by Andy Sullivan; editing by Marilyn Thompson, Cynthia Osterman and Eric Beech)
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