Taxpayers Pad Military Contractor CEO Pockets

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Foreign Policy In Focus

Taxpayers Pad Military Contractor CEO Pockets

Military contractors among the highest-paid CEOs of the past two decades.

Would you believe me if I told you that your tax dollars are lining the pockets of some of the highest-paid CEOs?

The Institute for Policy Studies recently released a report examining the performance of the corporate chief executives who have ranked among America’s 25 highest-paid CEOs in one or more of the past 20 years. CEOs from leading government contractors comprise more than 12 percent of the top-paid chief executives in the Institute’s report. In the same years that these CEOs received some of corporate America’s fattest paychecks, their firms snagged $255 billion in taxpayer-funded federal contracts.

Five of the companies with the highest-paid CEOs made the top 100 U.S. government contractors list every year over the past 20 years. These firms include two big military contractors — Lockheed Martin and United Technologies — along with IBM, General Electric, and Honeywell. These five companies have received $671 billion in federal contracts over the past 20 years.

More taxpayer dollars have flowed into the coffers of aerospace giant Lockheed Martin than any other U.S. corporation over the past 20 years. In 2012, U.S. government contracts accounted for 82 percent of Lockheed’s net sales.

A massive chunk of these public funds has wound up in the pockets of the company’s executives. Five times over the past 20 years Lockheed CEOs ranked among America’s top 25 highest-paid chief executives, earning sums that dwarf the pay levels of any U.S. military general or, for that matter, the commander in chief.

These taxpayer dollars haven’t inspired superior CEO performance. Lockheed Martin stands responsible for one of the most wasteful military projects of all time, the F-22 Raptor. At a cost of $339 million each, this plane became the most expensive fighter jet ever built— and never saw action in actual fighting.

Lockheed Martin has now turned its attention to a new fighter jet program: the F-35. Plagued by serious defects, the F-35 project is seven years behind schedule and 70 percent over its initial cost estimate. If the Defense Department eventually gets as many F-35 jets as it has requested, this project will rate as the most expensive weapon system in history.

While the federal government does set a cap for contractor executive compensation at no more than $763,029, companies are able to undermine this benchmark through the use of various loopholes. For instance, the benchmark does not curb windfalls from inflated stock options and “performance-based” bonuses. As a result, CEOs are free to use taxpayer dollars to indulge their pocketbooks without hindrance.

Exaggerated executive compensation that often rewards inferior performance and continues to sustain the vast CEO-to-worker pay gap is in itself a perverse trend. However, this trend becomes even more egregious when it’s coupled with the fact that taxpayers are actually supporting it.

Rep. Jan Schakowsky (D-IL) has promoted the idea of using the public purse to rein in contractor executive pay. Her idea is to extend tax breaks and federal contracting preferences to companies that meet good behavior benchmarks, including not compensating any executive at more than 100 times the income of the company’s lowest-paid worker.

By law, the U.S. government already denies contracts to companies that discriminate, in their employment practices, by race or gender. This reflects clear public policy that our tax dollars should not subsidize racial or gender inequality. In a similar way, this reform would discourage extreme economic inequality.

Another way to address the problem would be to eliminate the loophole in the tax code that allows corporations to deduct unlimited amounts from their income taxes for the expense of executive pay. Thanks to this loophole, ordinary taxpayers actually subsidize excessive executive compensation.

In the age of austerity, with politicians calling for massive cuts to social safety nets, we should reduce taxpayer-funded executive compensation before we decide to cut grandma’s Social Security check.

Javier Rojo

Javier Rojo is the Institute's New Mexico Fellow. He recently completed his undergraduate degree at University of New Mexico. As a student, he conducted research on Mexico’s drug war and co-founded the Latin America Sustainability Association.

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