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Study links defense contracts, soaring CEO pay

By ASSOCIATED PRESS
Published August 30, 2006

WASHINGTON - The chief executives of corporations making big profits from the war on terror are enjoying far bigger pay increases than CEOs of nondefense companies, according to a study by two liberal groups.

The study, conducted by the Institute for Policy Studies and United for a Fair Economy, found that, on average, CEOs of corporations with extensive defense contracts are getting paid about double what they made before Sept. 11, 2001.

CEOs of other large corporations - without big stakes in the war - have averaged pay gains of 6 percent during the same period, the study said.

The highest paid defense CEO, George David of United Technologies Corp. - which makes Black Hawk helicopters and jet engines - took in $31.9-million in 2005. That actually represented a big cut in pay from the $88.3-million he made in 2004.

Halliburton Co.'s CEO, David Lesar, saw his compensation more than double last year to $26.6-million. Halliburton has been the top provider of logistical services in Iraq such as transportation and feeding U.S. troops, but has come under fire for no-bid contracts and allegations it overcharged the government.

The study focused on the pay of the CEOs of the 34 publicly traded U.S. corporations that were among the top 100 defense contractors in 2005 and for which defense contracts made up more than 10 percent of revenues.

The two groups calculated the CEO pay packages based on salary, bonuses, stock awards, long-term incentives and the value of stock options exercised in any given year. The information is publicly available from Securities and Exchange Commission filings.

Among the companies surveyed were defense titans Boeing, General Dynamics, Lockheed Martin and Northrop Grumman, and lesser-known companies such as Oshkosh Truck, supplier of heavy trucks, and Edo, which makes cell phone jammers that can block roadside bomb explosions.

Between 2001 and 2005, the profits for the 34 companies have climbed 189 percent. Profits for U.S. corporations as a whole rose 76 percent.

Stock price gains for defense contractors have averaged 48 percent while the overall stock market has remained flat. Stock market gains translate into higher pay for executives, who often reap windfalls from stock options.

"This report is nonsense," said United Technologies spokesman Paul Jackson, who said defense contracts represent just 14 percent of 2005 revenue. "More than 80 percent of CEO George David's compensation is performance-based. The record shows UTC's shareowner return under his tenure totals 1,252 percent vs. 350 percent for the Dow and 275 percent for the S&P 500."

Another highly paid CEO is Jay Gellert, CEO of Health Net Inc., which provides managed health care to dependents of military personnel as well as Pentagon retirees. In the years immediately before Sept. 11, 2001, Gellert didn't break $1-million in compensation.

Gellert made $11.6-million last year after a big jump in military contracts that the company said in its SEC filings resulted from "a rise in demand for private-sector services as a direct result of continued and heightened military activity."

Health Net spokesman David Olson said partial privatization of military health care has saved taxpayers money. Olson said Pentagon contracts comprise 17 percent of Health Net's business.

"He's the CEO of a public company and his incentive compensation is linked to increases in shareholder value, and that's the way it works," Olson said. "And Health Net's stock in 2005 was the seventh-best performer in the Fortune 500."

Still, to the liberal groups sponsoring the study, the taxpayer-funded war shouldn't help drive up CEO pay.

"Why not say that if it's a contract with taxpayer dollars, they can't go to excessive CEO pay," said Betsy Leondar-Wright of United for a Fair Economy. "In past wars, there were efforts to limit war profiteering. We're having the reverse here. We're having people treating it as their own little bonanza."

[Last modified August 29, 2006, 22:55:40]