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Home > About Grassley > Government Contractor Salaries and Fees - Are Taxpayers Getting the Best Deal
Government Contractor Salaries and Fees: Are Taxpayers Getting the Best Deal?
The top five executives at big government contractors are able to charge as much as $693,951 apiece directly to the taxpayers while working for the taxpayers. That’s apart from what they might earn from the company itself.
That’s more than the President of the United States earns from the taxpayers.
Some contracts allow contractors to directly bill the government for their costs, including salaries, in addition to the fee for performing the contract. President Obama had pledged to crack down on the use of such contracts, but so far their use has slowed only slightly. A benefit of using private contractors is the ability to take advantage of market competition to get the best product or service at the lowest price, but this is undermined when the government agrees in advance to pick up the tab for the costs incurred by the contractor, including executive salaries.
Considering how many big federal contractors there are, this set-up results in a big chunk of money from the federal treasury for outside salaries. There’s a principle involved: If the highest official in any federal department makes $200,000, how much money is fair and reasonable for federal contractors to bill those same departments for their executives’ salaries?
The $693,951 cap is as of last year, the last time the government calculated the formula. It’s a complicated exercise based on the median salaries of the top executives of big companies in the private sector. If the government does the math this year, as it’s required to do, the number could go down if private sector executive salaries have gone down. Conversely, the number could go up if salaries have gone up.
Traditionally, it has gone up. The cap came about to limit the amount of money government contractors can directly charge taxpayers for the salaries of their top executives. In 1998, when it was first determined, the executive compensation benchmark for the top five employees of a government contractor was $340,650. In the last 12 years that amount has more than doubled, to $693,951. From 1998 to 2010, the benchmark grew 53 percent faster than the rate of inflation.
This week, I joined colleagues in urging the government agency in charge of contractors to do the math and figure out the contractor salary cap this year. The agency is required by law to issue such a determination annually but has yet to do so this fiscal year. As we wrote in our letter to the agency, “At a time when millions of Americans are unemployed, and millions more are taking home paychecks that don’t go as far as they used to, we ask you to determine the executive compensation benchmark for 2011. The American people deserve to know exactly how much government contractor executives will charge the taxpayer for their salaries this year.”
And going forward, I intend to take a hard look at reforming this formula, period. Government contractors should be compensated fairly for their work but they shouldn’t be allowed to featherbed the contracts at taxpayer expense.
September 16, 2011
The top five executives at big government contractors are able to charge as much as $693,951 apiece directly to the taxpayers while working for the taxpayers. That’s apart from what they might earn from the company itself.
That’s more than the President of the United States earns from the taxpayers.
Some contracts allow contractors to directly bill the government for their costs, including salaries, in addition to the fee for performing the contract. President Obama had pledged to crack down on the use of such contracts, but so far their use has slowed only slightly. A benefit of using private contractors is the ability to take advantage of market competition to get the best product or service at the lowest price, but this is undermined when the government agrees in advance to pick up the tab for the costs incurred by the contractor, including executive salaries.
Considering how many big federal contractors there are, this set-up results in a big chunk of money from the federal treasury for outside salaries. There’s a principle involved: If the highest official in any federal department makes $200,000, how much money is fair and reasonable for federal contractors to bill those same departments for their executives’ salaries?
The $693,951 cap is as of last year, the last time the government calculated the formula. It’s a complicated exercise based on the median salaries of the top executives of big companies in the private sector. If the government does the math this year, as it’s required to do, the number could go down if private sector executive salaries have gone down. Conversely, the number could go up if salaries have gone up.
Traditionally, it has gone up. The cap came about to limit the amount of money government contractors can directly charge taxpayers for the salaries of their top executives. In 1998, when it was first determined, the executive compensation benchmark for the top five employees of a government contractor was $340,650. In the last 12 years that amount has more than doubled, to $693,951. From 1998 to 2010, the benchmark grew 53 percent faster than the rate of inflation.
This week, I joined colleagues in urging the government agency in charge of contractors to do the math and figure out the contractor salary cap this year. The agency is required by law to issue such a determination annually but has yet to do so this fiscal year. As we wrote in our letter to the agency, “At a time when millions of Americans are unemployed, and millions more are taking home paychecks that don’t go as far as they used to, we ask you to determine the executive compensation benchmark for 2011. The American people deserve to know exactly how much government contractor executives will charge the taxpayer for their salaries this year.”
And going forward, I intend to take a hard look at reforming this formula, period. Government contractors should be compensated fairly for their work but they shouldn’t be allowed to featherbed the contracts at taxpayer expense.
September 16, 2011