Executive Compensation In The Arms Industry
William Hartung / Forbes
2022) — If Congress has its way, funding for the Department of Defense and related work on nuclear weapons at the Department of Energy will reach more than $850 billion in Fiscal Year 2023, far higher than spending at the height of the Cold War or the peak years of the Korean and Vietnam conflicts.
While advocates of spending these enormous sums often argue that the money is needed to “support the troops,” more than half of the Pentagon’s yearly budget goes to private contractors, many of whom are making hefty profits at taxpayer expense while producing flawed products at exorbitant prices.
One telling example of how these companies waste taxpayer dollars is how much they pay their top executives.
In 2021, the most recent year for which full figures are available, the top five weapons makers — Lockheed Martin LMT -1.3%, Boeing BA +0.5%, Raytheon, General Dynamics GD -0.4%, and Northrop Grumman NOC -1.8% — received over $116 billion in Pentagon contracts while paying their top two dozen executives a total of $287 million, according to data from the Pentagon and company proxy statements.
The CEOs of the top five contractors received compensation ranging from $18 million to $23 million each, including James Taiclet of Lockheed Martin, $18.1 million; David Calhoun of Boeing, $21.1 million; Gregory Hayes of Raytheon, $21.8 million; Phebe Novakovic of General Dynamics, $23.5 million; and Kathy Warden of Northrop Grumman, $19.9 million.
Since these firms receive a large share of their revenue from US government contracts, much of this excessive executive compensation is essentially subsidized by the taxpayers.
The figure for dependency on government contracts range from roughly half for Boeing (49%) and Raytheon (48%) to roughly three-quarters or more for Lockheed Martin (71%), General Dynamics (70%), and Northrop Grumman (85%). Huge CEO compensation does nothing to advance the defense of the United States and everything to enrich a small number of individuals.
It is useful to put the $287 million the top five contractors pay their top executives in some perspective. In the national security arena, average arms industry CEO pay of $21 million is 95 times the $221,000 that an active duty general makes, and 463 times the $45,000 in pay and allowances made by a beginning enlistee in the armed forces.
As expected, CEO pay at the Top Five also far exceeds the median pay of their own employees. At Lockheed Martin the ratio of CEO compensation to median worker salary is 164 to 1, compared to 169 to 1 at Boeing, 208 to 1 at Raytheon, 254 to 1 at General Dynamics, and 166 to 1 at Northrop Grumman.
Jobs for CEOs or Jobs for Employees
Another way to understand the size of CEO compensation at the big contractors is to look at how many jobs would be created if that $287 million were spent on something else. The answer is that spending that money on productive activities would create thousands of jobs: 2,812 jobs in clean energy or infrastructure; 4,104 jobs in health care; and 4,362 in education, calculated using data on the jobs impact of government spending generated by Heidi Peltier for the Brown Costs of War Project.
A large portion of the compensation package of most arms industry executives comes from stock options. Therefore, they have a personal incentive to try to boost company share prices, by whatever means necessary. Doing so by improving company performance is one thing, but that is not the only method employed.
As Sen. Elizabeth Warren (D-MA) has noted, rather than investing in research, plant, equipment, or employee compensation during a period of high cash flow and ample profits, top weapons making firms have spent tens of billions of dollars buying back their own shares.
This boosts stock prices, but does not result in better equipment for members of the armed forces or spur innovation in the development of future systems. It is a questionable practice that underscores the fact that too often in the defense sector, self-interest trumps the national interest.
Defense executives wouldn’t be able to earn multi-million dollar salaries if their companies weren’t grabbing billions in Pentagon contract awards.
In the run-up to the 2022 midterm elections, the arms industry was working overtime to curry favor with candidates from both parties, with a tilt towards Republicans (56% of contributions) over Democrats (43% of contributions) in keeping with predictions that Republicans would take over one or both houses of Congress in the November 2022 vote.
In addition to campaign contributions, the industry spent over $100 million on lobbying in just the first three quarters of 2022. And the top recipients of arms company donations were members with the most power to determine how high the Pentagon budget will go in Fiscal Year 2023 and beyond.
According to research by Open Secrets, top recipients of defense industry largesse were Rep. Mike Rogers (R-AL), who is in line to take over the chair of the House Armed Services Committee in January 2023, and Rep. Ken Calvert, who will likely chair the defense subcommittee of House appropriations. They received $444,400 and $390,750, respectively, in the 2022 election cycle.
The industry gives money to members best placed to help them secure taxpayer dollars. Thirteen of the top fifteen recipients are on the armed services or appropriations committee of their respective chamber. And in addition to incoming armed services and defense appropriations chairs Mike Rogers and Ken Calvert, the current leaders of those bodies — Rep. Adam Smith (D-WA) and Rep. Betty McCollum (D-MN) — are also in the top 15 recipients of defense sector funding.
Other key players include Rep. Elaine Luria (D-VA), who was defeated in the November elections but was a leader in the run-up to the elections in efforts to add tens of billions of dollars to the Pentagon budget beyond what the department even asked for; Rep. Rob Wittman (R-VA), a consistent advocate for more funding for the Virginia-based Newport News Shipyard; and Rep. Joe Courtney (D-CT), booster for General Dynamics’ Groton, Connecticut Electric Boat submarine plant. Wittman and Courtney are co-chairs of the Congressional Shipbuilding Caucus.
Executive compensation is just one indicator of the problems of overspending, waste, and profiteering in the defense sector. These larger issues cannot be addressed without finding ways to reduce the political and economic power of the military-industrial complex: campaign finance and lobbying reform, measures to curb price gouging, developing economic alternatives to the dependence of key communities on weapons spending, and more.
There should also be a healthy skepticism of the claim that America needs to spend more on defense when so much of it is being wasted, or determined by corporate interests rather than the national interest.
William Hartung is a Senior Research Fellow at the Quincy Institute for Responsible Statecraft. He is the author of Prophets of War: Lockheed Martin and the Making of the Military-Industrial Complex (Nation Books, 2011) and the co-editor, with Miriam Pemberton, of Lessons from Iraq: Avoiding the Next War (Paradigm Press, 2008). My previous books include And Weapons for All (HarperCollins, 1995), a critique of US arms sales policies from the Nixon through Clinton administrations.
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