Could We Actually End the CEO Defense Contractor Gravy Train?

Could corporate CEOs anywhere in the universe have a deal much sweeter than U.S. defense contractor chiefs?

The CEO at CybeCys, Inc., a Texas-based defense contractor, might quibble with that question. He isn’t feeling all that much sweetness these days. Last month, federal prosecutors announced a deal that will have this CEO and CybeCys pay over $283,000 in penalties and damages for cheating on two Covid-era federal loan programs.

The CybeCys CEO seems to have transferred hefty chunks of taxpayer dollars into his own personal investment accounts and used those dollars, prosecutors charge, to buy up “securities, exchange-traded funds, and cryptocurrency.”

Federal officials brought all sorts of firepower to bear on this case. The U.S. attorney’s office for the Eastern District of Virginia, the IRS criminal investigation office, and the Small Business Administration’s office of inspector general all had a hand in bringing CybeCys and its CEO to justice.

Need any more assurance that the feds have corporate profiteering off defense contracts under eagle-eye control? How about this: In 2023, under the terms of the 10-year-old Bipartisan Budget Act of 2013, no top exec at a U.S. defense contractor can directly pocket over $619,000 in tax dollars.

Alas, both this $619,000 annual CEO pay “cap” and the CybeCys penalties amount to nothing more than pure show. Federal defense contracting remains among the lushest of playgrounds for America’s rich.

Just how lush a playground? The United States, the Peter G. Peterson Foundation detailed earlier this spring, last year spent more on defense than the next ten highest defense-spending nations combined. The federal budget deal just brokered by the White House and the House majority leader ups that defense spending 3.3 percent. Defense contractors will pocket about half the resulting $886 billion.

A little perspective from Popular Information’s Judd Legum: Just eight years ago, the national defense community had to somehow make do with over $300 billion less.

But making do with “less” doesn’t come easy to that community’s corporate titans, folks like Dave Calhoun, the CEO at Boeing, the nation’s second-largest defense contractor.

This past March, Boeing’s annual filings revealed that poor Calhoun had missed his initial CEO “performance” targets and would not be receiving the $7-million bonus promised his way when the Boeing board hired him in 2020. Calhoun, as a result, had to be content with a mere $22.5 million in 2022 compensation.

The Boeing board clearly agonized over the decision to dock Calhoun that $7 million, so much so, notes Seattle Times aerospace reporter Dominic Gates, that board members earlier this year felt duty-bound to grant their CEO over the next three years an extra stack of shares — “not contingent on company performance” — worth some $15 million at today’s share value.

Investigators with the U.S. Government Accountability Office, the GAO, may have had incidents of executive excess just like that in mind when they concluded back in 2019 that the Department of Defense needed to “comprehensively assess” its contract financing arrangements, something the DoD hadn’t done since 1985. This past April, the DoD released an analysis that attempted to do just that.

“In aggregate,” this new DoD analysis concludes, “the defense industry is financially healthy, and its financial health has improved over time.” The nation’s “traditional major defense contractors” are “out-performing” their commercial counterparts “in many key financial metrics.”

But despite this “increased profit and cash flow,” the DoD found, corporations with massive defense contracts have chosen “to reduce the overall share of revenue” they spend on R&D and capital assets. They’ve put their higher profits instead into “significantly increasing the share of revenue paid to shareholders in cash dividends and share buybacks.” Those dividends and buybacks have jumped by an astounding 73 percent!

“Operating in the DoD environment,” the DoD report deadpans, “has its advantages.”

And defense contractor CEOs have been lining their pockets accordingly. In 2021, the most recent year with complete stats, the nation’s top five weapons makers — Lockheed Martin, Boeing, Raytheon, General Dynamics, and Northrop Grumman – grabbed over $116 billion in Pentagon contracts and paid their top two dozen execs some $287 million, Pentagon-watcher William Hartung noted this past December.

Taxpayers are generously subsidizing these more-than-ample paychecks, adds Hartung, the Center for International Policy arms program director. Corporate giants like Boeing and Raytheon depend on government contracts for about half the dollars they rake in. Lockheed Martin, General Dynamics, and Northrop Grumman depend on those contracts for at least 70 percent.

“Huge CEO compensation,” Hartung observes, “does nothing to advance the defense of the United States and everything to enrich a small number of individuals.”

That huge CEO compensation has nowhere to go but up once the new budget deal brokered by the White House and the House majority leader kicks into effect. But even before this deal, the Institute for Policy Studies National Priorities Project calculates, the “militarized portion” of the federal budget already accounted for 62 percent of all discretionary federal budget dollars.

We have precious little to show for this enormous expenditure of national treasure.

“The post-9/11 ‘war on terror,’ for example, has cost more than $8 trillion and contributed to a horrific death toll of 4.5 million people in affected regions,” the National Priorities Project points out. “Meanwhile, a U.S. military budget that outpaces Russia’s by more than 10 to 1 has failed to prevent or end the Russian war in Ukraine.”

So what can we do? The National Priorities Project analysts, in their latest report, advance a variety of steps that begin with immediately reducing the national military budget by at least $100 billion and reinvesting the savings in non-militarized discretionary priorities.

Progressive members of Congress, meanwhile, have also been pushing for a major change in contracting standards. Rep. Jan Schakowsky’s “Patriotic Corporations Act” would give companies with modest pay gaps between their top execs and typical workers a leg up in the bidding for federal defense contracts.

Or we could go the FDR route. In the months right after Pearl Harbor, the nation needed a major boost in revenues to wage and win the new world war. President Roosevelt and his New Dealers believed that those revenues should come first and foremost from the nation’s most affluent.

At a time of “grave national danger,” FDR told Congress in April 1942, “no American citizen ought to have a net income, after he has paid his taxes, of more than $25,000 a year,” about $465,000 in today’s dollars. Later that same year, a presidential executive order limited top corporate executive pay to $25,000 after taxes, a move, Roosevelt pronounced, needed “to correct gross inequities and to provide for greater equality in contributing to the war effort.”

Conservatives in Congress would eventually beat back that executive order, but FDR had, by that time, successfully recast the defense-revenue debate. The political battle would be fought on Roosevelt’s terms — not on whether to tax the rich, but on how much. By the war’s end, America’s wealthy would be paying federal taxes on income over $200,000 at a 94 percent rate.

That top rate would hover around 90 percent for the next two decades and help give birth, in the process, to the first mass middle class the world had ever seen. Miracles can happen.

Sam Pizzigati co-edits Inequality.org. His latest books include The Case for a Maximum Wage and The Rich Don’t Always Win: The Forgotten Triumph over Plutocracy that Created the American Middle Class, 1900-1970. Twitter: @Too_Much_Online.