WASHINGTON — The U.S. secretary of defense makes roughly $200,000 a year, while the CEOs of Lockheed Martin and Raytheon make more than $20 million. There is an element of absurdity to that.

And then you consider that Lockheed’s Marillyn Hewson and Raytheon’s Tom Kennedy are not an anomaly. Their counterparts at General Dynamics, Northrop Grumman, Boeing — all top-tier defense companies — pay their CEOs total compensation that falls in that ballpark, albeit a bit less.

So when you hear Sen. Bernie Sanders take aim at the defense industry, asking Defense Secretary Jim Mattis to address “the excessive compensation of defense contractors,” it seems reasonable. In the words of Sanders, who ran for president in 2016 attacking the vast earnings at the top of corporate America, half of the Pentagon’s budget goes directly into the hands of contractors. And of that amount, one-third, or about $100 billion, goes to the top-five contractors in the United States.

As Sanders put it during a Senate Budget Committee hearing earlier this month, Lockheed is “for all intent and purposes, a government agency.”

But actually it’s not.

The truth is, these are publicly traded companies. To compare the compensation of executives to that of Cabinet-level secretaries is apples to oranges. While it may be a hard pill for some to swallow, executive compensation of defense companies is reflective of Wall Street, of the corporate market as a whole, because that is the talent pool they are tapping.

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These companies are not recruiting from the Defense Department because, quite frankly, the skills needed to run a Fortune 500 company do not reside within the Pentagon. These companies are competing for talent against one another and other corporate giants. Compensation for the CEO of Pfizer, with roughly $53 billion to Lockheed’s $51 billion was $28 million. Sysco and FedEx, ranked just below Lockheed Martin on the Fortune 500, each pays its CEO more than $15 million. AIG, just above Lockheed in the ranking, saw executive compensation fall with the financial bailout, but it’s looking to return: New Chief Executive Brian Duperreault brought back big pay packages as part of a pledge to revive the insurer’s heyday of top talent.

In the words of Andrew Hunter, a former Pentagon acquisition official now with the Center for Strategic and International Studies: “Sanders is ignoring the concern that we need to give jobs to people in industry, and that involves paying them salaries that are competitive with Google, Apple and others competing for talent.”

It’s true that companies can essentially pay executives what they want as long as they don’t seek reimbursement from the government. (There’s a cap of $500,000 on the amount of executive compensation that can be baked into contracts.) But why shouldn’t they? These are private companies answering to customers on the products they deliver, but to shareholders on how they run the business. They are indeed bringing in billions from defense customers, but they’re also delivering advanced systems and technologies in return. That money is not funneling to companies’ coffers without getting anything in return.

As Pentagon Comptroller David Norquist told Sanders during the hearing: “Taxpayers should be paying for the services we receive.” And that is indeed what is happening.

And not to split hairs, but compensation isn’t hard cash alone. According to Lockheed’s latest proxy statement, Hewson’s total compensation included $9.79 million in base salary and bonuses, $9.23 million in stock awards, and a little more than $1 million in pension assets. Why does that matter? Because a good chunk stems from stock market performance, not contract revenue.

Am I arguing all this is reasonable? No. I actually find executive compensation ludicrous, as if companies are dealing with fun money instead of actual dollars and stock awards. I also feel that way about professional athletes and entertainers. And yet, we still go to football games and music concerts. What I am arguing is that, in the case of corporate compensation, it’s not quite as simple as Sen. Sanders, who repeatedly referred to Lockheed’s CEO as a “he” and “this guy” during the hearing, might like to claim.

This is a Wall Street problem — not a defense contracting one. Or perhaps this reflects another issue: that government officials are underpaid? I’ll save that for another column.

About Jill Aitoro

Jill Aitoro is editor of Defense News. She is also executive editor of Sightline Media's Business-to-Government group, including Defense News, C4ISRNET, Federal Times and Fifth Domain. She brings over 15 years’ experience in editing and reporting on defense and federal programs, policy, procurement, and technology.

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