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Senate panel approves cap on contractor pay

Jun. 6, 2012 - 04:12PM   |  
By SARAH CHACKO   |   Comments

Defense contractors could charge the government no more than the vice president earns — currently $230,700 — to pay most of their employees’ salaries, under a provision in the Defense authorization bill approved Tuesday by the Senate Armed Services Committee.

The current cap — $763,029 — applies to defense contractor employees’ wages, salary, bonuses and deferred compensation.

The current cap is based on the median compensation of senior executives in large U.S. corporations. At nonDefense agencies, the current cap applies only to a contractor’s top five executives; other employees working for those contractors can earn more.

The cap has increased by more than 75 percent in eight years, from $432,851 in 2004.

“At a time when most Americans are seeing little or no increase in their paychecks and budget constraints require the Department of Defense to find efficiencies in all areas, the committee concludes that increases of this magnitude are unsupportable,” the Senate Armed Services Committee said in its report on the bill.

In comparison, the Defense secretary earns $199,000 a year and the president’s salary is $400,000, Sen. Joe Manchin, who sponsored the amendment, said in a statement. Army privates earn, on average, $20,000 a year, he said.

“Keeping the most powerful military in the world is one of our most critical priorities, and we must do that by cutting fat, not muscle from the Defense Department,” said Manchin, D-W.Va.

Exceptions to the compensation cap would continue for contractor employees with “unique and needed skills and capabilities,” such as scientists and engineers.

Supporters of the amendment say companies can still pay employees as much as they want. The compensation cap limits how much the government reimburses contractors for employees who perform work for federal agencies.

However, lowering the cap constrains contractors’ ability to compete for talent, especially small businesses or companies whose business comes mostly from federal contracts, said Alan Chvotkin, executive vice president of the Professional Services Council, a trade association.

Low compensation is part of the reason government has trouble finding skilled workers in some areas, such as cybersecurity, Chvotkin said.

The committee recognizes the difficulty compensation restrictions pose for talent, which is why they make exceptions for skilled areas, he said. “When you start carving out exceptions, what’s the risk of harm by not allowing other exceptions?” Chvotkin asked.

The bill still must pass the full Senate and would then proceed to a conference committee. The compensation cap provision is not included in the House-passed version of the bill.

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