Underwriting Executive Excess

Source: Robert Hiltonsmith, Amy Traub Dēmos, September 2013

From the summary:
…In this brief, we extrapolate from the GAO study to estimate that the federal government is spending an estimated $20.8 to $23.9 billion a year to pay private contractors for the compensation of top executives. $6.97 to $7.65 billion in taxpayer dollars is spent annually on pay that exceeds the U.S. Vice President’s salary of $230,700 a year. Yet this gross misuse of taxpayer dollars is not inevitable. If the government cut the billions of dollars in excessive subsidies it pays for the salaries of executives at contracting companies, those savings could pay the lowest-paid contract workers a more livable wage, all without additional cost to taxpayers. Public officials should also evaluate cases where work can be done more efficiently and effectively by government employees than private contractors. …

Key Findings:
The federal government spends an estimated $23.9 billion a year paying private contractors for the compensation of top executives. If taxpayer-funded payouts for these executives were capped at $230,700—the salary of the U.S. Vice President—the pay of hundreds of thousands of low-wage federal contract workers could be raised by as much as $6.69 per hour or $13,902 per year for a full-time worker, without costing taxpayers an additional dime.

Analysis:
This brief uses the results of a recent Government Accountability Office (GAO) study on contracting compensation4 to estimate the amount the government could save if it lowered the cap on the maximum amount of employee compensation that contractors can charge to the federal government. Current law dictates that the federal government must reimburse or price into contracts up to $763,039 in compensation for any one employee—an amount pegged to the salaries of the most highly-paid private sector executives. This maximum, which has risen by 48 percent (adjusted for inflation) since 2004, is set to rise to more than $950,000 later this year if no action is taken to change the formula….