OMB Raises Ceiling on Executive Compensation

Last week, the OMB (Office of Management and Budget) announced the 2010 ceiling for executive compensation. The 2010 ceiling is $693,951 - a small increase over the 2009 ceiling of $684,181.

According to the OMB, this "...amount does not limit the amount of compensation that an executive may otherwise receive. However, the compensation costs in excess of the benchmark amount are unallowable costs for Government contract purposes."

OMB also warned that this benchmark is not necessarily a "safe harbor". Allowable compensation costs for each affected executive are still subject to the Federal Acquisition Regulation and the Cost Accounting Standards as applicable and appropriate to the circumstances, e.g., reasonableness and allocability. The Executive Compensation Cap is implemented at FAR 31.205-6(p).


In case you're wondering how this ceiling was derived, the Administrator, Office of Federal Procurement Policy, (OFPP), determines the benchmark executive compensation amount as required by Section 39 of the OFPP Act, as amended (41 U.S.C. 435). The benchmark amount applicable for a fiscal year is the median amount of the compensation provided for all senior executives of all benchmark corporations per commercially available surveys for the most recent year for which data is available at the time the OFPP Administrator determines the amount. The data used is the median (50th percentile) amount of compensation (total amount of wages, salary, bonuses and deferred compensation) accrued over a recent 12-month period for the top five highest paid employees in management positions at each home office and each segment of publicly traded U.S. companies with annual sales over $50 million. Once a benchmark compensation amount is established for a fiscal year, it is applicable for that fiscal year for a contractor and subsequent fiscal years, unless and until revised by OFPP.

Go here to read OMB's full announcement.