Your Tax Dollars at Work —
for Defense Contractor CEOs

September 24, 2007

The Bush administration’s “war on terror” may be stumbling in Iraq, but you won’t find America’s defense contractors complaining.

In the five years after 9/11, the CEOs at five major defense contractors pocketed over $345 million in paychecks, notes a new analysis released last week. Over this same time span — 2002 through 2006 — five other CEOs at somewhat smaller defense contractors saw their average annual pay more than triple.

All these glad tidings — for defense contractor executives — appear in a MSN Money pay survey that draws on data collected by the Washington, D.C.-based Institute for Policy Studies.

And these glad tidings show no sign of slacking off. At the largest U.S. defense contractor, Lockheed Martin, CEO Robert Stevens has already cleared, in 2007, over $19 million cashing out stock options.

What’s wrong with this picture? A dozen years ago, Congress actually passed a law that was supposed to limit defense contractor pay — after news reports revealed that a host of CEOs with federal defense contracts were laying off workers by the thousands and, at the same time, collecting paychecks in the millions.

Under the 1995 law meant to prevent that sort of excess, the federal Office of Management and Budget now sets an annual limit on the executive pay allowable under government contracts. The limit, announced last March, currently stands at $597,912.

How can defense CEOs be pulling in annual windfalls in the eight figures if the law limits CEO pay for contractors to the mid six figures? Easy. The annual OMB pay limit only limits the executive pay contractors can directly bill the government.

If a company gets a bundle of Iraq War contracts, in other words, and those contracts send the company’s share price soaring, the company’s CEO can take home as much as that CEO can grab.

General Dynamics CEO Nicholas Chabraja grabbed $97.9 million in the five years after 9/11. The share price for General Dynamics stock has more than doubled since the “War on Terror” began.

Shares of stock for defense contractor Halliburton, Vice President Dick Cheney’s old stomping ground, have soared even more, from $5 to over $40. Halliburton CEO David Lesar raked in, on average, just under $16 million a year from 2002 through 2006.

Lesar owes his ample good fortune to taxpayers. Tax dollars from defense contracts constituted only 4 percent of Halliburton revenues in 2001. By 2004, that share had exploded ten-fold, to 40 percent.

Tax dollar-subsidized windfalls for defense CEOs, notes MSN’s Michael Brush, complicate an already complicated post-9/11 picture. They create very real risks “that a war might be prolonged for profit motives.”  

How best to eliminate this risk? The latest executive pay study from the Institute for Policy Studies and United for a Fair Economy suggests one answer: deny government contracts to companies that pay their top execs over 25 or 50 times what their workers are making.

In fact, Congress could deny contracts to companies that pay CEOs over 50 times what generals are making and still be able to force cuts in CEO pay land. Since the start of the Iraq War, CEOs from the likes of General Dynamics have averaged “more in four days” than the $187,390 top generals make in an entire year.

— Sam Pizzigati

Sam Pizzigati edits Too Much, the weekly online newsletter on excess and inequality. For updates on inequality stats, trends, and books — and everything else about inequality — check here for a free weekly subscription.