Obama Budget Renews Effort to Cap Contractor Pay

Companies worry that covering a wider range of employees harms talent search.

Deep inside President Obama’s fiscal 2014 budget released last week is language to set in motion another effort to clamp down on the amounts taxpayers reimburse contractors for the compensation of their top executives as well as their workforce writ large.

Currently, contracting firms are permitted to write off pay and benefits of up to $763,000 for each of their top five executives. Lawmakers such as Sen. Barbara Boxer, D-Calif., and Rep. Paul Tonko, D-N.Y., have joined with unions such as the American Federation of Government Employees to lower the reimbursement cap to help curb the federal deficit. They argue that executive pay and benefits have risen by 300 percent since the cap was introduced in the mid-1990s.

The Obama budget states that the administration was “encouraged by the proposal in the 2013 Senate’s National Defense Authorization bill to cap reimbursement for defense contractors at the level of the vice president’s salary, which is currently $230,700.” The budget document then urges Congress to “expand the Senate’s proposal to cover all contractor employees -- both defense and civilian -- and pass a law that allows agencies to pay above this cap on an exception basis only, when it is necessary to ensure the agency has continued access to the skills and capabilities of specialists to achieve mission outcomes.”

Stan Soloway, president and CEO of the Professional Services Council, which has long opposed lowering the caps as an inhibitor of the industry quest for talent, called the new language “disappointing, counterintuitive and counterproductive. It mixes two issues,” he told Government Executive. The debate started with “a fair discussion about capping allowable costs for the top five because of some egregious salaries,” he said. “But extending the cap to all employees is nonsensical. No company in this economy is going to bid more than they have to do the work well. And certain areas of talent may cost them more than the cap allows since the cap is not just about salary, but all things.”

Setting the cap at the vice president’s salary, he added, is “ludicrous” since the “full burden” of that pay package gets into millions of dollars.

Scott Amey, general counsel for the nonprofit Project on Government Oversight, in a blog expressed hope that Congress will take up the question this year with bipartisan support. “The compensation formula is out of step with economic realities,” he wrote, “and as a result, taxpayers are paying billions in contractor compensation that is above anything earned by federal employees -- including the president -- and the majority of the private sector.”

(Image via Nata-Lia/