Time to Roll Back the $760K Contractor Salary Cap
Policy + Politics

Time to Roll Back the $760K Contractor Salary Cap

iStockphoto/The Fiscal Times

Here’s an easy way for the government to save about $7 billion a year: Tighten the cap on the lavish salaries paid to executives at government contractors.

The cap is currently at $760,000 per contract per executive per year. That’s almost 15 times greater than the average household income – meaning that the federal government is helping to worsen the same income inequality President Obama has decried.

These salaries are the subject of a new study by the progressive think tank Demos, which sorted through payment data to more than 49,000 defense contractor companies and more than 10,000 non-defense firms.

In some cases, the Pentagon cannot even monitor the work being done by these executives and their employees. Internal investigations have revealed countless abuses and incompetence by contractors, ranging from how national security background checks are conducted to an Environmental Protection Agency warehouse that became a makeshift gym.

Using numbers from the Government Accountability Office, Demos looked at the consequences of lowering the cap to the salary of Vice President Joe Biden -- $230,700. The New York-based think tank estimated that taxpayers would save $6.97 billion to $7.65 billion annually.

Almost all of that money would come out of the bank accounts and investment portfolios of 49,000 defense industry executives, according to the study released Tuesday.


“There’s a lot of money spent on C-suiters,” said Robert Hiltonsmith, a policy analyst at Demos who co-wrote the study. “We’re wasting taxpayer dollars on compensating these already highly paid executives.”

The cap was $432,000 in 2004. But instead of being indexed to inflation or wages, it was indexed to the salaries of other executives. The cap has grown by 76 percent since 2004, more than three times faster than inflation across the entire economy.

Adjusting that limit to the vice president’s salary is not arbitrary. Senators Joe Manchin (D-WV), Barbara Boxer (D-CA) and Chuck Grassley (R-IA) have sponsored a bill that would cap executive reimbursements at $230,700. But the measure has been stuck in the Senate Homeland Security and Governmental Affairs Committee without much chance of being passed.

Critics of reducing the cap say it would cause the government to receive less value from its contractors. Hiltonsmith countered that businesses would not leave $517 billion worth of contracts on the table because of a lower compensation cap.

“The government,” he said, “does have the bargaining power here.”