Total Executive Compensation

Aerospace corporate officers, in addition to their annual salary, receive the standard benefit package that is available to all employees and several additional benefits that are available only to them. Table 1 summarizes the total fiscal year 1994 compensation provided to Aerospace’s 12 corporate officers and 20 senior managers based on actual benefits paid and salaries as of September 30, 1994. Executive Salaries

From September 1991 to September 1994, the average annual salary for all Aerospace executives (corporate officers and senior management personnel) increased by 23 percent, from about $125,000 to about $153,300. During those 3 years, the total cost of salaries for Aerospace executives increased by 78 percent, from about $2.75 million to about $4.91 million, primarily due to salary increases of up to 29 percent for individual executives during 1992 and a 45-percent increase in the number of executives from 22 to 32. Although Aerospace notified the  Air Force 3 weeks before implementing the increase, the Air Force expressed concern that Aerospace did not present the salary increase and supporting documentation to the government in time to allow the Air Force to review the increase and determine its reasonableness. From September 1991 to September 1994, Aerospace increased the number of its executives by 45 percent, from 22 to 32. During the same period, Aerospace nonexecutive employment decreased by about 17 percent, from 3,973 to 3,303. As a result, the ratio of executives to nonexecutive employment decreased from 1 per 181 employees to 1 per 103 employees. Table 3 compares the number of executives and the total number of employees since September 1991. Hiring Bonuses

In 1993, Aerospace paid two executives hiring bonuses of $30,000 each. DCAA Audit of Aerospace Compensation Costs

After the Air Force’s request in June 1992, DCAA initiated a review of Aerospace’s compensation. DCAA agreed and, as a result of using additional data, issued a revised report in January 1994, which no longer questioned the reasonableness of corporate officers’ salaries and reduced the compensation costs considered unreasonable for other employees. In the Fiscal Year 1995 DOD Appropriations Act, the Congress placed a limit on defense FFRDC compensation after July 1, 1995. As of September 30, 1994, there were 16 Aerospace executives with annual salaries of more than $148,400, the current Executive Schedule Level I salary amount. According to the act, the Inspector General is to (1) assess the validity of the data submitted by FFRDCs, justifying salaries that exceed the Executive Schedule Level I rate; (2) compare the compensation paid to those individuals exceeding that rate with the compensation of similar technical and professional staff from profit and nonprofit organizations that must compete for defense work and with government officials of comparable expertise and responsibility; and (3) examine other appropriate forms of nonsalary compensation, such as bonuses and retirement plans.
Why GAO Did This Study

Pursuant to a congressional request, GAO reviewed executive compensation at The Aerospace Corporation, which operates an Air Force-sponsored federally funded research and development center (FFRDC).

What GAO Found

GAO found that: (1) as of September 1994, Aerospace employed 32 senior management personnel (referred to as Aerospace executives), 12 of which were corporate officers; (2) the officers' total annual compensation averaged about $240,200 and their annual salary averaged about $176,400; (3) corporate officers' benefits included a retirement plan that is not available to senior management personnel or other employees; (4) the total annual compensation for the other 20 Aerospace executives that were not corporate officers averaged about $154,300 and their annual salary averaged about $139,500; (5) from September 1991 to September 1994, total salary cost for all Aerospace executives increased by 78 percent, from about $2.75 million to about $4.91 million, primarily due to salary increases of up to 29 percent for individual executives during 1992 and a 45-percent increase in the number of executives from 22 to 32 between 1991 and 1994; (6) during that time, the average annual executive salary increased by 23 percent, from about $125,000 to about $153,300; (7) Aerospace officials told GAO that increasing both the salaries and the number of executives were sound management decisions based on the best information available at the time and were justified for a number of reasons, including to better align Aerospace with its customers; (8) in addition, in 1993, Aerospace paid two executives hiring bonuses of $30,000 each. Aerospace classified these bonuses as nonreimbursable costs, consistent with the Federal Acquisition Regulation (FAR); (9) between September 1991 and September 1994, the number of nonexecutive employees at Aerospace decreased by 17 percent, from 3,973 to 3,303; (10) this decrease, coupled with the increase in the number of executives, reduced the ratio of executives to total nonexecutive employees from 1 per 181 employees to 1 per 103 employees; (11) in an audit started in response to Aerospace's June 1992 salary increases, the Defense Contract Audit Agency (DCAA) initially questioned the reasonableness of corporate officers' salaries and fringe benefits; (12) in its final report, however, DCAA no longer questioned the reasonableness of corporate officers' salaries but recommended that Aerospace provide further support for corporate officers' fringe benefits; (13) the Air Force and Aerospace have been working to resolve the issues raised by DCAA's audit; (14) fiscal year 1995 appropriations legislation limits employee compensation at the Department of Defense (DOD) FFRDCs, effective July 1, 1995, to a rate not to exceed Executive Schedule Level I; and (15) as of September 30, 1994, 16 Aerospace executives had annual salaries of more than $148,400, the current Executive Schedule Level I salary amount.