[Federal Register Volume 78, Number 233 (Wednesday, December 4, 2013)]
[Notices]
[Pages 72930-72931]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-28982]
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OFFICE OF MANAGEMENT AND BUDGET
Office of Federal Procurement Policy
Determination of Benchmark Compensation Amount for Certain
Executives and Employees
AGENCY: Office of Federal Procurement Policy, Office of Management and
Budget.
ACTION: Notice.
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SUMMARY: The Office of Management and Budget is publishing the attached
memorandum to the Heads of Executive Departments and Agencies
announcing that $952,308 is the ``benchmark compensation amount'' for
certain executives and employees in terms of costs allowable under
Federal Government contracts during contractors' fiscal year 2012. This
determination is required under Section 39 of the Office of Federal
Procurement Policy Act, as amended (41 U.S.C. 1127). The benchmark
compensation amount applies to both defense and civilian agencies.
FOR FURTHER INFORMATION CONTACT: Raymond Wong, Office of Federal
Procurement Policy, at 202-395-6805.
Joseph G. Jordan,
Administrator, Office of Federal Procurement Policy.
Memorandum for the Heads of Executive Departments and Agencies
FROM: Joseph G. Jordan, Administrator, Office of Federal Procurement
Policy
SUBJECT: Determination of Benchmark Compensation Amount for Certain
Executives and Employees, Pursuant to Section 39 of the Office of
Federal Procurement Policy Act, as amended (41 U.S.C. Sec. 1127)
This memorandum sets forth the benchmark compensation amount for
employees of Federal Government contractors as required by Section 39
of the Office of Federal Procurement Policy (OFPP) Act, as amended (41
U.S.C. Sec. 1127) for the purposes of section 4304(a)(16) of title 41
and section 2324(e)(1)(P) of title 10. The statutory benchmark amount
(the ``cap'') limits the allowability of compensation costs under
Federal Government contracts as implemented at Federal Acquisition
Regulation (FAR) 31.205-6(p). In less technical terms, the statute
places a cap on the total annual compensation amount the Federal
Government will reimburse a contractor for the compensation the
contractor provides to each of its employees for work done pursuant to
certain Federal Government contracts. This cap applies to the
compensation of certain contractor senior executives on contracts with
civilian agencies (i.e., agencies other than the Department of Defense
(DOD), the National Aeronautics and Space Administration (NASA), and
the United States Coast Guard), and the compensation of all contractor
employees on contracts with defense agencies (i.e., DOD, NASA and Coast
Guard), when the contractor is performing contracts that are of either
a cost-reimbursable nature or other cost-based nature. It should be
noted that, while the statute places a cap on the amount that the
Federal Government will reimburse the contractor, the statute does not
limit the amount of compensation that the contractor actually pays to
its employees. Contractors can, and do, provide compensation to their
employees that exceed the amount that is reimbursed by the Federal
Government.
Section 39 of the OFPP Act sets out a formula for determining the
cap amount. Specifically, the cap amount is set at the median (50th
percentile) amount of compensation provided, over the most recent year
for which data is available, to the five most highly compensated
employees in management positions at each home office and each segment
of all publicly-owned U.S. companies with annual sales over $50
million. The determination is based on analysis of data made available
by the Securities and Exchange Commission. Compensation means the total
amount of wages, salaries, bonuses, restricted stock, deferred and
performance incentive compensation, and other compensation for the
year, whether paid, earned, or otherwise accruing, as recorded in the
employer's cost accounting records for the year.
When the cap was raised to $693,951 for Fiscal Year (FY) 2010, the
President called on Congress to repeal the current statutory formula
and replace it with a lower, more sensible limit that is on par with
what the Government pays its own executives and employees. Over the
last several years, the Administration has strongly reiterated the need
for reforms to the current statutory framework and Congress has
considered several proposals to reform the compensation cap. To date,
however, Congress has not revised the cap amount or the formula for
adjusting the cap. Instead, Congress made only a modest change that
expanded application of the statutory cap on defense contracts from the
contractor's senior executives to all of its employees (section 803 of
the National Defense Authorization Act for FY 2013, Pub. L. 112-81,
December 31, 2011). This expansion of the applicability of the cap to
all contractor employees did not cover contracts with the civilian
agencies, so the cap for those contracts remains applicable only to
certain contractor senior executives, which is defined as the five most
highly compensated employees in management positions at each home
office and each segment of the contractor.
After consultation with the Director of the Defense Contract Audit
Agency, OFPP has determined, pursuant to the requirements of Section
39, that the FY 2012 cap amount for the compensation of a contractor
employee covered by this provision is $952,308. (By comparison, the cap
for FY 2011 was $763,029, which means that the statutorily-mandated
formula for calculating the cap has generated a one-year increase of
nearly $190,000 in the amount that taxpayers are required to reimburse
contractors for their compensation practices.) This amount applies to
limit the costs of compensation for contractor employees that are
reimbursed by the Government to the contractor for costs incurred on
all contracts, after January 1, 2012 and in subsequent contractor FYs,
unless and until revised by OFPP. This applies to covered contracts for
both defense and civilian procurement agencies, as specified in Section
39. Additionally, as explained above, with regard to civilian agencies,
the cap continues to cover compensation to the same limited number of
contractor executives as did the Section 39 caps for FY 2011 and prior
years. With regard to covered contracts awarded by DOD, NASA, and the
Coast Guard, the cap covers compensation for all contractor employees.
Consequently, the cap may apply to different groups of contractor
employees, employed by the same contractor, if that contractor has
contracts with both defense and civilian agencies.
Because Congress has not changed or replaced the statutory formula
for setting the cap, the Administration is compelled by statute to
raise the cap for another year in accordance with that
[[Page 72931]]
statutory formula. In other words, under current law, the
Administration has no flexibility to depart from the statutory
requirement that the cap be adjusted annually based on the application
of the statutorily-mandated formula. Under the statutory formula, the
cap for the reimbursement ceiling must be adjusted from one year to the
next, and these annual adjustments must be based on annual survey data
of compensation amounts for certain senior executives of publicly-owned
U.S. companies with annual sales over $50 million. As has been amply
demonstrated throughout the 15 years in which this statutory formula
has governed, the statutory reliance on the survey data bears no
relationship to (1) the type of work that contractor employees are
actually performing under applicable Federal contracts and (2) the
general trends in the U.S. economy with respect to increases in prices
and wages. The statutorily-driven outcome is that, each year, taxpayers
must continue to go even further down the path of paying for increases
in the reimbursement cap that far outpace the growth of inflation and
the wages of most of America's working families. Prior to the enactment
of the statutory formula in 1998, the reimbursement cap was an amount
that was specified by statute; for Fiscal Year 1997, Congress set the
cap at $250,000. When the current statutory formula went into effect,
it increased the cap to $340,650 (for costs incurred after January 1,
1998). Since then, the statutory formula has generated annual increases
that have now resulted in the cap reaching $952,308 (for costs incurred
after January 1, 2012). In addition to this statutorily-dictated amount
being a one-year increase of nearly $190,000 (from the prior cap of
$763,029 for FY 2011) and a two-year increase of nearly $260,000 (from
the cap of $693,951 for FY 2010), this amount also represents an
increase in the cap of 55% over the last four years (from the cap of
$612,196 for FY 2008).\*\
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\*\ Congress set the reimbursement cap at $250,000 for FY 1997
in P.L. 104-201, Sec. 809, and P.L. 104-208, Sec. 8071. The
current statutory formula, with its annually-required adjustments,
was put into place by P.L. 105-85, Sec. 808, as amended by P.L.
105-261, Sec. 804. The statutory formula increased the cap to
$340,650 for costs incurred after January 1, 1998, and the
subsequent annual increases have raised the cap to $342,986 (1999);
$353,010 (2000); $374,228 (2001); $387,783 (2002); $405,273 (2003);
$432,851 (2004); $473,318 (2005); $546,689 (2006); $597,912 (2007);
$612,196 (2008); $684,181 (2009); $693,951 (2010); $763,029 (2011);
and now $952,308 (2012).
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Earlier this year, the Administration again urged Congress to
reform the compensation cap. The Administration's proposal would
replace the current formula with a benchmark compensation cap that is
tied to the President's salary--which is currently $400,000--and apply
it across-the-board to all contractor employees on all defense and
civilian cost-based contracts. Employers would continue to have the
discretion to compensate their employees at any level they deem
appropriate--the cap would continue to only limit how much the
Government will reimburse the contractors for the services of those
employees. Tying the cap to the President's salary provides a
reasonable level of compensation for high value Federal contractor
employees while ensuring taxpayers are not saddled with paying
excessive compensation costs. Importantly, the proposal provides for an
exemption to the cap if, and only if, an agency determines such
additional payment is necessary to ensure it has access to the
specialized skills required to support mission requirements, such as
for certain key scientists or engineers. These important reforms can
save taxpayers hundreds of millions of dollars over what they will have
to pay if the cap remains unchanged.
Questions concerning this memorandum may be addressed to Raymond
Wong, OFPP, at 202-395-6805.
[FR Doc. 2013-28982 Filed 12-3-13; 8:45 am]
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