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Analysis

POGO Wants Reduced DoD Contractor Employee Compensation Cap

Yesterday, the Project On Government Oversight and nine government accountability, research, and labor groups urged members of Congress to lower the cap on maximum allowable compensation paid by taxpayers to all Department of Defense contract employees from $763,029 to $230,700, pursuant to section 842 of the National Defense Authorization Act for FY 2013 (S. 3254).

The most recent proposal was sponsored by Senator Joe Manchin (D-W.Va.), and follows bipartisan efforts by Senators Barbara Boxer (D-Calif.) and Charles Grassley (R-Iowa) and efforts by Representatives Paul Tonko (D-N.Y.) and Jackie Speier (D-Calif.).

Estimates predict a reduction in taxpayer-paid compensation would result in savings of at least $5 billion a year, almost 10 percent of the entire $55 billion reduction in 2013 required by sequestration. Those savings might be a low estimate—one senior official testified that the Army would save $6 billion if the compensation cap was reduced to $400,000, nearly double the current legislative proposal.

Thankfully the Senate provision reduces the cap to $230,700. And let’s remember that it does not limit how much contractors may pay their employees working for the Defense Department—it only reduces the amount the government will reimburse them. POGO believes that compensation based on meeting financial performance indicators, or that is shockingly higher than the salary of any senior government official, is more appropriately paid from corporate earnings or equity than as a base contract cost passed on to taxpayers.

The ever-expanding compensation benchmark is bad policy that requires correction, especially considering the efforts to reduce spending by freezing the salaries of federal employees. POGO hopes that section 842 of S. 3254 remains in the final version of the FY 2013 National Defense Authorization Act and that Congress recognizes that a reduction of the cap is essential to meeting government-wide cost-cutting goals.