7 Delta Inc. - Offering Innovative Technology Management Solutions

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Shumaker Report Contractor Salary Caps By Gary E. Shumaker Gary Shumaker, President, Gary E. Shumaker, Inc. If you’re a federal contractor, your customer wants more scrutiny of how much you pay your employees—and how much you pay yourself! First, government procurements started wanting data on the pay of executives on both the primes and the subcontractors. Now, the Department of Labor wants detailed data on your employee’s pay and benefits. The Department of Labor’s Office of Federal Contract Compliance Programs announced on August 10 that it is considering the development of a new data tool to collect information on salaries, wages and other benefits paid to employees of federal contractors and subcontractors. According to the Department’s press release, “. . . the tool would improve OFCCP’s ability to gather data that could be analyzed for indicators of discrimination, such as disparities faced by female and minority workers. According to Set-Aside Alert, an industry newsletter focusing on small business issues, several contractor organizations have denounced the proposal, as intrusive and burdensome. Other sources note that a presidential executive order already prohibits federal contractors from discriminating in employment practices, including compensation. Tighter control of contractor executive salaries were an element of President Obama’s economic growth and deficit reduction plan released in September includes a provision that would lower the cap on the maximum executive compensation reimbursable to federal contractors. A report accompanying the Obama administration’s proposed jobs legislation recommends an “end to the overpayment of federal contractor executives” by abolishing a formula used for 15 years to cap reimbursable salaries and instead setting the ceiling at the salary level of the senior most federal executive—$200,000. Since executive salaries aren’t usually required to be disclosed in time and materials and firm fixed price contracts, this rule would affect primarily cost-plus contracts. These contracts account for about $160 billion annually in federal spending. The current formula sets the maximum amount the government can reimburse contractor executives at about $700,000. This figure is based on the median amount of compensation provided to the top five highest paid management employees at publicly traded companies with annual sales greater than $50 million. That cap has risen from $295,000 in 1995 to about $750,000 in 2011. Actually, contractors may pay their executives more, but salaries in excess of this amount may not be counted as costs in the calculation of the basis for contracts of this type. The net effect is that pay in excess of this amount comes directly out of profit. Senators Barbara Boxer, Chuck Grassley and Congressman Paul Tonko recently reinforced this sentiment in an Oct. 12 letter to the super committee considering deficit reduction, saying, “We do not believe that taxpayers should fund government reimbursements for private contractor salaries that are more than three times higher than the pay earned by Cabinet Secretaries. When salaries are paid on the taxpayer’s dime, a $700,000 price tag for an executive is simply unaffordable. That is why no federal employee is paid anywhere near that amount, including the President of the United States.” Industry groups such as the Professional Services Council responded that it is widely accepted that Cabinet member pay scales government are too low, calling the proposed limit “short sighted and illogical,” according to Set-Aside Alert. The current ceiling is tied to what the government determines is fair and reasonable for a company of similar size in a similar market. The Boxer-Grassley-Tonko letter also proposed extending the cap to all contractor employees. In certain categories of small business, the chief executive is required by regulation to be the most highly compensated employee in the company, so for those companies, a de facto limit on employee salaries is already in place. 36 Minority Enterprise Advocate • November – December 2011
The letter estimates that the caps will save at least $3 billion over ten years. Some industry sources have argued that the use of contractors provides a path to gain the services of exceptional experts who could not be reached with government salary scales, and capping contractor employee salaries effectively limits utilization of contractors to provide higher levels of expertise. The super committee is slated to propose budget cuts before Thanksgiving. Gary E. Shumaker is the founder and senior consultant for Gary E. Shumaker, Inc., a strategic business development practice specializing in helping small companies develop the intellectual infrastructure to succeed in the federal market place. For more information, visit garyeshumaker.com. What’s Your Investment ... Continued from page 34 the picture. We have limited control on expected future returns, while we can exert significant influence on the level of risk that we undertake. Keep this in the forefront of your thinking about the longterm value of an IPS, and how yours is working today. Walid L. Petiri, AAMS, RFC Chief Strategist Financial Management Strategies, LLC 1330 Smith Avenue, Suite 7 Baltimore, MD 21209 (p) 410-779-1276 (f) 410-779-1302 Please visit our website www.fmsadvisors.com Financial Management Strategies, LLC (FMS) is a Registered Investment Advisory firm in the State of Maryland. We specialize in comprehensive wealth management and wealth preservation for individuals and small businesses, providing premium services in financial planning, business consulting, financial analysis and research, wealth management and real estate development. MEA International Coming Soon The New Nigeria MEAInternational Minority Enterprise Advocate March - April 2011 USA $5.95 CAN $7.25 Connecting U.S. businesses to the global economy His Excellency Adebowale Ibidapo Adefuye For sponsorships, advertising, business profile, or subscription contact us (703) 730-4091, www.meecouncil.com – U.S. Ambassador of the Federal Republic of Nigeria Minority Enterprise Advocate • November – December 2011 37
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