Pentagon Contractor CEO Compensation is Second to None

By BEN FREEMAN, Ph.D.

$21.5 million.

A lottery winner's prize? The cost of a private plane or yacht?

How about the annual compensation of a major defense contractor’s Chief Executive Officer?

A Project On Government Oversight analysis of executive compensation at the top five Pentagon contractors – Lockheed Martin, Boeing, General Dynamics, Northrop Grumman, and Raytheon – found that the average compensation package of a CEO at one of these firms was approximately $21.5 million last year, according to the firms’ Securities and Exchange Commission filings. Total compensation is the sum of base salary, bonuses, stock awards, option awards, incentive compensation, deferred compensation (including changes in pension value), and all other compensation.

Given the apocalyptic rhetoric some of these CEOs are using to describe planned reductions in Pentagon spending and their poor track record on job creation, we at POGO wanted to see just how many jobs could be provided for the price of just one of these CEOs. Here’s what we found:

• The average worker in the U.S. earned $45,230 last year. These CEOs were paid more in an average day than the average American worker was paid all of last year.
• According to a 2011 Congressional Budget Office analysis, the median compensation (including basic pay, allowances for food and housing, and tax advantages) for enlisted U.S. military personnel with ten years of experience was about $64,000. Thus, the Pentagon could afford to pay the salary of 335 soldiers with the money from just one top defense contractor’s compensation package.
• The CEOs of these top Pentagon contractors are also making significantly more than their own workers. According to a Deloitte study, the average wage (just salary, not benefits) for the entire aerospace and defense industry in 2010 was $80,175. For the price of one CEO then, these firms could pay the salary of 268 defense and aerospace industry workers.
• Even compared to other CEOs these Pentagon executives are making an enormous amount of money. An Associated Press study of S&P 500 CEO’s (i.e. the largest publicly traded companies) found that the typical CEO received $9.6 million in total compensation last year. Thus, the top Pentagon contractors could afford two CEOs with the compensation they’re using to pay their current CEOs.

CEOs vs. Workers

Click here to see just how much more defense CEOs make than workers.

These five CEOs weren’t even the highest paid heads of Pentagon contractors. That honor goes to David Cote, the CEO of Honeywell, whose $35.7 million compensation package made him the sixth highest paid CEO in the U.S. last year, according to the Associated Press study.

And, taxpayers are paying for part of this lavish compensation – a practice POGO has long fought against. A provision that passed the Senate Armed Services Committee and legislation that was introduced in the House this summer would reduce the cap on taxpayer-funded compensation for defense contractors, legislation POGO applauds.

“Private companies can pay their employees whatever they want, but federal contractors should not be able to pass on salary costs to taxpayers that are more than three times what a member of the President’s cabinet makes,” said Sen. Chuck Grassley (R-Iowa) in a statement regarding the Senate’s provision.

If these CEOs are genuinely interested in minimizing job loss as they cut costs, they should realize that the most effective option is staring back at them in the mirror. In this tight economic climate taxpayers simply cannot afford to pay for this lavishness.

Ben Freeman is an investigator for the Project On Government Oversight.

Follow @BenFreemanDC

Comments

[Ben Freeman]

Thank you all for your comments.

James: Thanks for more fully elaborating the executive compensation cap. While I am aware of the regulation (see the hyperlink I placed over "taxpayers are paying"), I opted not to include a complete explanation of it here. Thus, your comment - which is completely accurate - is a most welcome addition. It should also be noted that in addition to the approximately three-quarters of a million dollars of compensation taxpayers can be directly billed for, even more executive compensation can be paid for with the profits from these government contracts. Thus, even without directly billing the government for these CEO's, taxpayer money can potentially go towards financing all of these lavish compensation packages.

Thanks again for your comment.

[Julie Carr]

Much as I don't like just giving people welfare money, I see little difference in giving these CEO's this kind of money and some poor welfare queen a handout. NOBODY is worth 21 million dollars. NOBODY. I don't care what they do or don't do. The middle class is getting fleeced so badly it isn't even remotely funny. Rich folks are ripping us off for waaaaaay more money than poor folks. Then, they hire lobbyists to keep the gravy train rolling into their depot. Pathetic.

[Jay Sack]

POGO looses some of its credibility when it only reports on the sensational side of the story. One of the comments was right on target, Defense salaries are capped at $700+. Therefore, ranting and raving about exectuve compensation from a defense budget stanpoint is pointless. Come on POGO get your act togerther.

[roy]

Mr Freeman:
Where do you think the "stockholders" get there money? The government contracts!! So they waste more of our tax dollars on accountants to hide there fraud.

[Evelyn McMullen]

Why do those Congress budget people always want to sock it to the active duty and retired military? Where cost-cutting should be is these obscene salaries of these CEO contractors!

Do the budget fixers not KNOW what's going on?

[Nina Diamante]

Remove Pentagon Contractor CEO and don't pay him 1 cent more than $25,000 per annum. Cut Pentagon Budget to $0.00. Make friends with other countries, killing doesn't make friend, it makes the world hate Americans. $0. to the Pentagon. Stop stealing from the American people and making a huge deficit.

Nina Diamante

[James Condrey]

Mr Freeman,

Are you aware of Federal Acquisition Regulation (FAR) 31.205-6(p) and the Office of Management and Budget (OMB) Section 39 of the Office of Federal Procurement Policy (OFPP) Act (41 U.S.C. 435) that limits the total compensation of the top 5 executives for each business unit within a company like Lockheed-Martin, Boeing, etc. This contract clause only allows $763,029 for 2011 (I don't have the 2012 number handy) of their total compensation in the overhead rates paid by the US Government for their contracts. What this clause does, is to say that the company can pay their executives whatever they want, but the Government will only allow that amount in the development of overhead rates.

So, although I agree with you that the compensation for these executives might be hefty, it is the investors paying for most of these tabs, not the tax payers.

[Deepakromney]

Defens--you are needlessly tormenting yoself. Time to stop concentrating on waste in the fifth place right of the decimal. Instead, look and safe your ire for gigawaste programs, like the F-35, rebuilding nukes, and USDA crop supports for corporate farmers. All the carping on relatively small, minute stuff simply deflects attention. Also, if you are as pained as you sound, you ought to quit, unless u believe that your work is critical to national defense and can only be done by you. Good luck in any case.

[Dfens]

These CEO's make these lavish salaries despite the fact that none of their companies have any defense programs that are on-schedule or on-budget. I calculated that the CEO for the defense contractor I work for makes more money taking a crap than I make in a week of slaving over a hot keyboard and mouse. In fact, the main reason they make so much money is due to their ability to interfere with the work employees such as myself do. The harder it is for me to do my job, the more money the company makes. The happier the stock holders are. The more money the CEO makes. Seriously, the only people losing here are the US taxpayers and those poor sorry bastards who actually put their lives on the line so we can not give a damn where our tax money is going nor to whom it is going.