Apr 19, 2010

Donna Dominguez

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2010 Allowable Executive Compensation Limit Increases by $10K

The Office of Management and Budget (OMB) has raised the ceiling on executive compensation costs under government contracts for GFY 2010 to $693,951.  This is only a 1.4% increase from GFY 2009 maximum amount of $684,181. 2010′s ceiling was the smallest increase in recent years, most likely a reflection of the down economic climate.  The $693,951 figure only limits the executive compensation that companies can claim as a cost in government contracts. It does not limit the compensation that an executive may otherwise earn, noted Daniel Gordon, administrator of OMB’s Office of Federal Procurement Policy (OFPP).

OFPP determines this limit based on surveys of executive compensation of large publicly-traded companies.  This limit may not reflect reasonable compensation for small contractors.  For small to midsize companies the ceiling on executive compensation is going to be proportionately lower than the $693,951 benchmark. They will need to be substantiated based on “relevant business” such as, firm size, industry, geographic area, and if engaged in non-government work (FAR 31.205-6(b)(2) &/or (FAR 31.205-6(p).

Aronson & Company can answer your executive compensation questions and can help defend DCAA executive compensation challenges, contact Donna Dominguez at ddominguez@aronsoncompany.com

The Defense Contract Audit Agency (DCAA) conducts its own executive compensation reviews and considers such factors as size, industry, geographical region, and compensation of those engaged in similar non-government work.  DCAA can challenge executive compensation amounts under the maximum for reasonableness.

Additional information is available here:
- OFPP, Executive Compensation, Benchmark Maximum Allowable Amount, 2004 – 2010:
http://www.whitehouse.gov/omb/procurement_index_exec_comp
- OMB Memorandum – Determination of Benchmark Compensation Amount for Certain Executives:
http://edocket.access.gpo.gov/2010/2010-8641.htm