On the same day that President Barack Obama delivered a reasoned yet impassioned address on the need to act decisively to attack class inequality in the United States, his administration was announcing a decision directly contrary to that goal. The Office of Federal Procurement Policy (OFPP) increased the maximum contractor compensation that may be charged to government contracts by 24.8%, from $763,029 per employee per year to $952,308 per employee per year—even though government contractors are less efficient than government employees, who have to make do with a 1% raise after a three-year freeze on basic pay rates.

Primarily affecting employees at the largest government contractors, like defense and information technology firms, the cap is “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,” according to a notice in the Federal Register. Based on a formula established in 1997 for corporate senior executive compensation packages, the cap has increased nearly fourfold from its original level of $250,000.

Located in the Office of Management and Budget (OMB), OFPP is run by Administrator Joseph G. Jordan, who emphasized the administration’s opposition to the size of the increase in last Wednesday’s Federal Register. Noting that Obama has asked Congress to set “a lower, more sensible limit that is on par with what the Government pays its own executives and employees,” Jordan wrote that the statutory formula “bears no relationship to…the type of work that contractor employees are actually performing.”

Jordan touted an administration proposal to tie the cap to the president’s salary, arguing it would provide “a reasonable level of compensation for high value Federal contractor employees while ensuring taxpayers are not saddled with paying excessive compensation costs.” He stressed that regardless of its level, the cap does not limit how much government contractors may pay their executives, only how much they may charge the government. “Contractors can, and do, provide compensation to their employees that exceed the amount that is reimbursed by the Federal Government,” wrote Jordan.

But Stan Soloway, president of the Professional Services Council that represents contractors, told Washington Post reporters months ago that the idea of tying the cap to the President’s salary was “disingenuous,” because “the president’s salary has no relationship to what high quality executive talent commands in the real world.”

That kind of talk—which implies that federal administrators don’t work in the real world—infuriates federal executives. “With nearly 70 percent of federal career Senior Executives managing programs with budgets in excess of $50 million, contractor executives and career federal executives function in comparable roles,” argued the Senior Executive Association in a statement. “It is high time to re-evaluate the market competitiveness of the compensation offered to government executives.”

In addition to administration proposals, Rep. Paul Tonko (D-New York) is sponsoring a measure that would peg the cap to the vice president’s salary of $230,700. “At a time when House leadership aims to cut benefits for the working poor and those looking for a job,” Tonko said, “it is unconscionable that they will stand by and allow gross overpayment of taxpayer dollars to federal contractors to continue.”

-Matt Bewig

To Learn More:

U.S. Government Now can Pay Individual Contractors almost $1 Million Annually (by Joe Davidson, Washington Post)

Contractors Receive Huge Raise on Same Day Income Inequality Discussed (by Scott H. Amey, POGO Blog)

In Midst of Pay Freeze, Some Federal Contractors May Earn Million-Dollar Annual Salary  (by Noel Brinkerhoff, AllGov)