The Office of Management and Budget wants Congress to reconsider a proposal to reduce how much contractors can charge the government for their executives’ compensation, an amount that is currently “unjustified and unnecessary,” the federal procurement chief said in a blog post this morning.
Under federal cost reimbursement contracts, agencies pay contractors for incurred costs, including salaries for executives and other employees. These costs usually show up in the overhead rates that contractors set. OMB caps how much contractors can charge the government for executive compensation based on what top private sector executives earn.
Contractors can currently ask the government to reimburse up to $693,951 for each of its top five executives. OMB will soon have to update that figure and the cap is expected to increase to $750,000.
The administration asked Congress last year to scrap the formula that sets the reimbursement cap and instead tie it to what the government pays its own top executives, about $200,000.
“Unfortunately, Congress failed to reform the current reimbursement formula for contractor executives and, until it does, taxpayers will continue to foot a bill that is both unjustified and unnecessary,” Lesley Field, acting administrator of OMB’s Office of Federal Procurement Policy, said in the post.
The administration has asked Congress to take another look at the formula and lower the compensation cap this year.
Mary Smith Says:
January 31st, 2012 at 12:49 pm
This bill will only hurt the middle class employees of federal contractors. Think about it. Is the board of directors really going to cut the CEO’s salary from $2 mil to 200k because they can’t include the compensation in overhead? Be serious. The CEO will still make $2 mil but he will tell every department to cut overhead to make up for the lost profit. They will cut administrative assistants, human resources staff, contracts admins, etc. until they make up the lost $550k. They will also cut corners on direct charge staff, searching out the cheapest direct charge labor instead of the best they can find. The top five will be the last to feel any pain. Sometimes I wonder if the people at the OMB care one bit about the regular folks who devote their careers to supporting the federal government. It sure doesn’t seem like it.
Jaime Gracia Says:
January 31st, 2012 at 9:55 pm
Arbitrarily setting limits of government contractor pay is not only bad policy, but especially detrimental to small businesses. It is hard to fathom how this Administration can punish a small business entrepreneur, who takes enormous risk in a very challenging market, creates jobs and value for the taxpayer, only to not be able to not be properly compensated for the risk assumption under the guise that their compensation is “excessive.”
It is a fact that rewarding top talent is vital for commercial firms to compete. Has it not dawned on Administrative officials at the disparity between this proposed change, and the fact that companies such as General Electric pay their top executives hundreds of millions of dollars in total compensation, yet these firms pay little to any taxes?