OMB announces new cap on executive compensation costs in federal contracts

The ceiling on executive compensation costs under government contracts is $14,284 higher in fiscal 2008 than in fiscal 2007, according to an administration memo released Tuesday.

The Office of Management and Budget's Office of Federal Procurement Policy announced that $612,196 is the maximum amount a company can charge the government under cost reimbursement contracts to compensate an executive. Last year's amount was $597,912.

According to the memo, the compensation limit is the median amount of compensation accrued over a recent 12-month period for the top five highest paid executives of publicly traded companies with annual sales over $50 million. The $612,196 figure limits only the executive compensation that companies can claim as a cost in government contracts; it does not limit total compensation.

OFPP has calculated a benchmark compensation amount annually since 1997 in consultation with the Securities and Exchange Commission and the Defense Contract Audit Agency.

Alan Chvotkin, vice president and general counsel for the Professional Services Council, says that while the industry association is generally wary of arbitrary compensation caps, this is a long-standing policy they have come to accept. "The amount is probably fair and reflects a benchmark," said Chvotkin.

The compensation of executives at companies doing business with the government has been a hot topic recently. Blackwater Worldwide chief executive Erik Prince refused to disclose his personal compensation during a House hearing in October 2007. Soon after, Rep. Christopher Murphy, D-Conn., introduced the 2007 Government Contractor Accountability Act (H.R.3928), which would require contractors to disclose the names and salaries of their most highly compensated officers if more than 80 percent of the company's annual revenue comes from federal contracts and it holds contracts worth more than $5 million in any fiscal year.

Chvotkin has testified against Murphy's legislation and said Tuesday that the compensation limit for contracts is partly why he believes the law is unnecessary.

"His [Murphy's] view is that the federal government ought to know what private companies pay their executives; my answer is why? The government is not paying unlimited amounts; [privately held contracting companies] are subject to the same cap … so the government knows they are not paying more than $612,196 toward salary," Chvotkin said.

Murphy has said taxpayers have a right to know more about what kind of profits private companies are making from government contracts. H.R. 3928 is currently in committee.