Who is Really Paying That $1M+ Salary?

A key benefit of owning your own business is the ability to enjoy fully the fruits of your labor. Entrepreneurship is one of the main ways to achieve financial independence. But some people, however, are taking issue with the high levels of compensation paid out at some small businesses. They believe that its unfair for executives to earn as much as $1 million per year or more while working at a successful "mom and pop." What's the reason for this unhappiness? The main customer is Uncle Sam, which means taxpayers are footing the bill.

An investigation by The Washington Times found that at least 77 small businesses who derive at least 80 percent of their revenues from federal government contracts paid a total of $633 million in compensation to the 5 most senior-ranking employees at each company. On average, the top five executives at each company earned a combined $3 million. Just because the compensation is high doesn't mean you can conclude that something inappropriate is taking place. The law permits government contractors to pay executives up to $763,029 per year from government funds. Any compensation above that must come from non-government projects. But in some cases, the investigation found examples of potential over billing on the part of the contractors, calling into question the true source of some of this compensation.

Congress and the Obama Administration are considering restricting the top salary for defense contractors to $250,000 per year from government funds, a tremendous reduction from current levels. While this won't affect all contractors immediately, it's likely that the days of a small business winning a juicy contract and giving the owner a big pay day will soon be over. 

If nothing inappropriate has taken place, then it seems inappropriate for a customer to tell a supplier how much they pay their employees. Especially on fixed price contracts, winning the deal means the client inherently accepts the price. So why should they have a say as to how the spoils are divided? What do you think?

[The Washington Times]

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