Senators to Seek Limits on Taxpayer-Funded Executive Pay

Boxer, Grassley, Harkin Plan Amendment to DoD Authorization Bill

Sens. Barbara Boxer (D-CA), Chuck Grassley (R-IA) and Tom Harkin (D-IA) today announced that they will offer an amendment to limit the compensation defense contractor executives can bill to taxpayers for work on military programs.

Specifically, the bi-partisan amendment which they will offer during Senate consideration of the authorization bill for the Department of Defense (DoD) would limit reimbursable compensation for defense contractor executives to $200,000, an amount equal to the salary of the President of the United States. The senators said the amendment would not limit the total pay of contractor executives because that is an issue they believe is appropriately left to the directors and stockholders of each individual corporation. The amendment only would limit the amount that contractors can bill to taxpayers.

This issue has been the subject of legislative action in each of the past three years. In fiscal year 1995, Congress limited allowable compensation costs on some contracts to $250,000 per year. The 1996 DoD appropriations act limited compensation at $200,000 for the final third of the fiscal year. Last year, the DoD appropriations act imposed yet another limit on executive compensation.

In response to a request from Boxer, Grassley and Harkin, the General Accounting Office (GAO) recently completed an evaluation of the effectiveness of the limited cap imposed in fiscal year 1995. "The GAO confirmed our fears: Congress' off-again, on-again approach to this issue has been totally ineffective," the senators said. The GAO concluded that the 1995 cap "had no significant effect on limiting executive compensation charged to defense contracts."

In fact, the latest findings of the GAO revealed that one contractor paid its top executives more than $33 million in compensation over the $250,000 limit in 1995. However, the GAO concluded that billing virtually all of this excess compensation to the taxpayers would be legal because the cap imposed in 1995 had so many loopholes. In fact, according to the GAO, less than one percent of all contracts were covered by the 1995 cap.

"This situation cries out for Congress to pass a clear, consistent, uniform standard on executive compensation. This is exactly what our amendment does," Boxer, Grassley and Harkin said in a dear colleague letter circulated this week on Capitol Hill.

The senators also said that the Armed Services Committee has acknowledged problems with the current compensation system and has proposed legislation to put some limits on allowable compensation. The committee bill would limit compensation to the median level of pay for all senior executives at large public companies. The committee limits its proposal to the five highest-ranking executives at each defense contractor, placing no limits on the amount of allowable compensation for other senior executives.

"We believe that the committee approach is fundamentally flawed because it uses the wrong benchmark to evaluate executive compensation -- the salaries of other wealthy private sector executives. It makes more sense to use public sector salaries as a guide for reasonable compensation. After all, work by defense contractors is conducted on behalf of the people of the United States. No defense contractor executive should be paid more by taxpayers than the Commander in Chief," Boxer, Grassley and Harkin wrote.

The Senate is expected to begin consideration of the DoD authorization bill on Monday.