Proposed Legislation Affecting Employee Compensation - November Update

Our last update on employee compensation was back in July so its time for an update.

THE HOUSE: Back in July, the House passed the Fiscal Year 2014 National Defense Authorization Act. That bill included two measures impacting the Government's reimbursement of compensation.

1. For the top five executives at contractors receiving more than $500 million in contract awards the previous fiscal year (these are called "covered contractors"), no compensation will be allowable under Government contractors. That's correct, zero.
2. For everyone else, compensation is capped at $763 thousand but will be adjusted annually by changes in BLS's Employment Cost Index. This limit can be exceeded if the Secretary of Defense determines that greater increases for positions in science, technology, engineering, mathematics, medical and manufacturing fields are needed to ensure that DoD has continued access to needed skills and capabilities.

THE SENATE: The Senate Armed Services Committee's markup of the 2014 NDAA sets the compensation cap at $487 thousand, which was the original cap adjusted for inflation. It did not make any changes regarding the allowability of compensation paid to the top five executives of covered contractors. The committee stated:

The 1988 NDAA limited the amount of contractor executive compensation allowable for reimbursement under federal contracts to a benchmark based on the median amount of compensation provided to senior executives in large U.S. corporations as calculated by the Office of Federal Procurement Policy (OFPP) - then $340,650.

Since that time, the cap has more than doubled to $763,029 for 2011 and 2012 , and is expected to increase to more than %950,000 in 2013. By contract, if the original cap had been adjusted for inflation it would now be only $487,325. The committee concludes that the growth of the cap by almost $300,000 more than the rate of inflation cannot be justified.

THE WHITE HOUSE: The White House also provided comments to the 2014 NDAA. It recommends lowering the cap to $400 thousand, the President's salary. It also proposes to keep the prohibition on reimbursing contractors anything for the top five executives of covered contractors. The White House stated:

The Administration appreciates the intent of section 813 to reform the cap establishing the reimbursement limit on compensation for contractor employees. However, the Administration urges adoption of its proposal that would tie the cap to the President's salary; this approach is more cost-effective and would achieve a better result for taxpayers than the proposed approach of retaining a high cap based on a flawed formula for most employees while allowing no reimbursement for the contractor's highest paid executives. The Administration looks forward to working with the Congress on adoption of a fiscally responsible cap that ends excessive contractor payments in a fair and effective manner.

With all that's been going on in the Federal Government, sequestration, furloughs, Affordable Care Act, and a few scandals, the Senate has not yet taken the time to consider the 2014 NDAA. Senator Levin was recently quoted as saying they'll do that before year-end.