Since 1998, the Administrator for Federal Procurement Policy has determined the cap on allowable compensation costs. The cap is set at the median amount of the compensation provided for the five most highly compensated employees of all publicly owned U.S. corporations with annual sales in excess of $50 million for the most recent fiscal year for which data are available at the time of the determination. To help calculate the cap, DCAA contracts with an outside vendor, which collects and analyzes data submitted by corporations as part of the corporations’ annual filing to the Securities and Exchange Commission. DCAA officials stated the analysis includes data from more than 3,000 companies. DCAA reviews the data provided by the vendor, then recommends the cap level to the Office of Federal Procurement Policy, which publishes the cap in the Federal Register.
Until recently, the cap on compensation costs has only applied to the five most highly compensated employees in management positions at each home office and each segment of a contractor. However, the National Defense Authorization Act for Fiscal Year 2012 expanded the applicability of the limitation to all contractor employees performing under contracts awarded by DOD, the Coast Guard, and NASA. The act also provided that the Secretary of Defense may establish narrowly targeted exceptions for scientists and engineers, if it is determined that such an exception is needed to ensure DOD has continued access to needed skills and capabilities.
The current cap was set at $763,029 and was published by the Office of Federal Procurement Policy on April 23, 2012. The $763,029 cap applies to costs incurred during the contractors’ fiscal year 2011 and to subsequent contractor fiscal years, unless and until revised by the Office of Federal Procurement Policy. The cap has more than doubled since 1998 in then-year dollars; when adjusted for inflation and measured in 2011 dollars, the cap has increased by about 63 percent in real terms.
But the CPI overstates inflation for those takers on Social Security.