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To cut budget deficit, put limits on contractor pay

Sep. 11, 2011 - 06:00AM   |  
By JACQUELINE SIMON   |   Comments

Concern over government spending has been used by some as a pretext to attack federal employees, particularly their pay even though the government is required to provide its employees with wages and salaries that are modest but fair, and to make that compensation process transparent to the public.

Agencies pay top doctors, scientists and attorneys in the civil service no more than $155,500 per year. Career executives who manage whole programs and agency divisions can be paid no more than $179,700 per year. The maximum salary for a Cabinet secretary is $200,000 per year. Even the president's pay is capped at $400,000 annually. Most federal employees, of course, earn far less; blue-collar pay starts at $8.58 per hour and white-collar salaries start at $20,340 a year.

Contrast that with service contractors. Knowing that with increased visibility comes increased accountability, contractors have always fought efforts to make them more transparent. Indeed, we don't even know how many contractor employees there are, let alone how much they are paid.

The size of the service contractor workforce is unknown, but we do know it is immense. For example, in the Defense Department, total civilian personnel funding increased from $41 billion in 2001 to $69 billion in 2010; during that same period, total service contract funding increased from $104 billion to $181 billion.

We also know that contractors can charge taxpayers directly for almost $700,000 annually for the salary of a single employee. The current statutory compensation limit is based on the average level of compensation received by the top five executives of all Securities and Exchange Commission-registered corporations with sales in excess of $50 million per year.

This averaging results in a number that is applied as a compensation cap for the five most highly compensated executives at each contractor or contractor segment. That leaves other salaries able to be reimbursed by taxpayers without the $700,000 limitation.

Contracts subject to the limit generally include all flexibly priced contracts (e.g., cost-reimbursement, incentive-type and fixed-price contracts for which certified cost or pricing data is submitted).

Since 1998, the compensation cap applicable to government contracts has more than doubled, from an egregious $340,650 in 1998 to an unconscionable $693,951 in 2010. Of course, contractor executives often make millions of dollars per year because their firms richly supplement the already generous salaries provided by taxpayers.

The House's 2012 Defense authorization bill would extend the cap on taxpayer salary reimbursement to cover all contractor employees, not just the top five most highly paid employees. That's a step in the right direction, but it would leave in place the cap's dollar limit of almost $700,000. The Senate's version of the bill would apply that cap only to contractor executives.

Rep. Paul Tonko, D-N.Y., has tried to offer amendments on the floor to cap taxpayer reimbursement of contractor salaries at $200,000 per year. The first time, his amendment was mysteriously not made in order. The second time, his amendment was ruled out of order for procedural reasons. The House leadership denied Tonko and the American people a vote on a sensible amendment that would save billions of dollars.

As Congress strives to reduce deficits, shouldn't the Tonko amendment at least be considered? Contractors will continue to work behind the scenes to prevent such an amendment from being offered in the Senate. And if it is offered, we should expect to hear the usual disingenuous arguments about how this modest restraint on contractor compensation will deny agencies access to doctors and scientists.

However, if $200,000 or less is enough for the Nobel-winning scientists at the National Institutes of Health and NASA, the secretaries of the Defense, State, and Health and Human Services departments, and the other professionals who work to protect the public interest, it's good enough for the government's contractors, as well.

I am grateful that the government has not succumbed to the private sector's winner-take-all pay practices that force downward pressure on hourly workers and middle-income jobs while the executives rake in millions. There is no reason why contractors need compensation that is more than triple their civil-servant counterparts.

Jacqueline Simon is public policy director at the American Federation of Government Employees, which represents 625,000 federal and District of Columbia government employees.

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