Obama Jobs Proposal Would Significantly Limit Exec Comp Reimbursements for Federal Contractors

Executive Pay Plan Design

President Obama’s “Jobs for America” legislation would raise revenue by reducing by two-thirds the amount the Federal government will reimburse federal contractors for compensation of their five highest paid executives.  By statute, the Office of Federal Procurement Policy is required to revise annually the cap for reimbursements of executive compensation for the top five executives of large federal contractors.  Using commercially available surveys and a benchmark group of companies, the OFPP set the 2010 allowable reimbursement cap at $693,951, and the 2011 cap is expected to be near $750,000.  The President’s proposal states that the "Administration believes the Government is reimbursing too much for contractor executives, and the cap’s amount cannot be justified.  As a result, the Administration proposes to abolish the formula and instead tie the cap to the salary of senior-most Federal officials—specifically, Executive Schedule Level I, currently approximately $200,000.  Setting the cap at this level will bring greater parity between Federal and contractor executives’ compensation.”  The proposal ignores the market for talent in the commercial marketplace, which is much different than the pay and benefits structure in the federal government, and could have unintended consequences in procurement.  Recently, Senators Barbara Boxer (D-CA) and Charles Grassley (R-IA) along with Rep. Paul Tongo (D-NY) sent a letter to Office of Management and Budget Director, Jack Lew, expressing concern over the level of the cap and hinting that the 2011 level should be lower than the 2010 level.  “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 letter stated.