Friday, May 31, 2013

Employee Compensation Caps - Here We Go Again

Joseph G Jordan, the Administrator for Federal Procurement Policy (and also the CAS Board Chair) posted a comment on the OFPP (Office of Federal Procurement Policy) website yesterday announcing that next week, the Administration will be transmitting to Congress a legislative proposal to stop excessive payments to Federal contractors by limiting what the Government is willing to reimburse for employee compensation. This, Jordan says, is an important step in the Administration's ongoing effort to buy smarter and end wasteful, fiscally imprudent contract spending.

Under current law, the compensation cap is $763 thousand for 2011. But that cap is set it increase significantly to $950 thousand for 2012 if Congress doesn't do something about it. There were some attempts last year to reduce the cap. There was one proposal for $400 thousand and another that set the cap at the Vice President's level, around $230 thousand. Ultimately, the only change made was to extend the cap from the top five executives of a company to all employees.

The Administration's proposal would replace the current formula with one that caps it at the President's salary (currently $400 thousand). According to OFPP, "Tying the cap to the President's salary provides a reasonable level of compensation for high value Federal contractors while ensuring taxpayers are not saddled with paying excessive compensation costs." It would also apply to all Government contractors, not just Defense contractors like previous proposals.

The proposal will also provide for exemptions if an agency determines such additional payment is necessary to ensure it has access to the specialized skills required to support mission requirements, such as for certain key scientists or engineers.

Finally, OFPP was clear to point out that nothing in the proposal limits what a contractor can pay its employees. It only limits the amount that the Government will reimburse contractors. OFPP estimates that this proposal will save taxpayers hundreds of millions of dollars over what they would have to pay if the cap remains unchanged. We don't know how these savings were computed - whether they represent a single year or multiple year savings. "Hundreds of millions" seems rather large for a one year period. (When asked at a press conference how the amount was computed, Jordan declined to be more specific).

Something is bound to happen this year. With the 2012 cap approaching $1 million, a lot of people are going to take notice.

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