Executive Compensation - December Update

Last month, we discussed the various executive compensation caps that exist within the President's budget and the Senate and House versions of the 2014 NDAA. You can read about it here.

The latest news on this subject has the House and Senate Armed Services Committee reaching an agreement on the cap. This agreement sets the cap at $625 thousand and provides for adjustments based on the BLS's (Bureau of Labor Statistics) Employment Cost Index. That index is currently hovering around the two percent level.

The House Armed Services Committee introduced the agreement with these words. The "flawed formula" being discussed is the one that has executive compensation set at $950 thousand for 2012.

Executive Compensation Reform: The NDAA recognizes the White House’s formula for calculating allowable private sector compensation on DOD contracts has become dysfunctional and does little to protect the taxpayer or provide transparency in government contracting. The NDAA rationalizes the cap to $625,000 and does away with the flawed formula. The NDAA allows for the cap to be adjusted based on the Employment Cost Index, which is commonly known and publicly available index computed by the Bureau of Labor Statistics. The NDAA rejected calls by some to cap individual industry compensation at the President or Vice President’s salary level, as such a standard represents an arbitrary comparison between compensation and salary and will only serve to drive critical talent from the nation’s defense industrial base.

The specific wording appearing in the Bill, amending Section 2324(e)(1) of title 10, United States Code, states that the following costs are unallowable:

Costs of compensation of any contractor employee for a fiscal year, regardless of the contract funding source, to the extent that such compensation exceeds $625,000 adjusted annually for the U.S. Bureau of Labor Statistics Employment Cost Index for total compensation for private industry workers, by occupational and industry group not seasonally adjusted, except that the Secretary of Defense may establish exceptions for positions in the science, technology, engineering, mathematics, medical, and cybersecurity fields and other fields requiring unique areas of expertise upon a determination that such exceptions are needed to ensure that the (Government) has continued access to needed skills and capabilities.’’.

The House passed this version of the 2014 NDAA (National Defense Authorization Act) but the Bill has not passed in the Senate yet, where, some 507 amendments have been offered. Reports we've read however, state that the Senate is rushing to pass it before the end of the year.