Summary

In the midst of defense downsizing, salary, bonuses, and other compensation paid to the five highest paid executives at the top 10 defense contractors ranged from $230,000 in 1989 to nearly $18 million in 1993. Many of these executives also exercised stock options, with one individual receiving $26 million in 1993. In 1989, the average compensation paid by different defense contractors to salaried employees ranged from $35,900 to $48,700. By 1994, the figures had risen to $48,100 and $55,000, respectively. In 1989, the average annual compensation for hourly employees ranged from $24,700 to $32,200; in 1994 these figures ranged from $30,200 to $39,500. In response to decreases in Defense Department procurement, these companies have adopted various restructuring strategies, including mergers with competitors, divesting units no longer considered to be part of their core businesses, consolidation of production facilities, and commercialization of military technologies. Assistance provided to separated workers included termination pay based upon salary level and length of service; outplacement services, such as job counseling and assistance with resume writing; and extension of employee health, dental, and insurance benefits for a time after separation. Nine out of the 10 companies GAO surveyed provided incentives to encourage voluntary separation.

GAO found that: (1) for 1989 through 1994, it examined the salary, bonus, and other cash payout received by the 5 highest paid executives at each of 10 defense companies, and also examined the net value realized from the executives' exercise of stock options; (2) the salary, bonus, and other cash payout paid to these executives ranged from about $230,000 in 1989 to $17.92 million in 1993; (3) the net realized value of exercised stock options for the top five executives varied greatly, ranging from about $27,000 to $26 million; (5) in 1989, the average annual compensation paid by different defense contractors to salaried employees, as reported by 6 out of the 10 comapnies, ranged from $35,900 to $48,700; (6) by 1994, the figures had increased to $48,100 and $55,000, respectively; (7) in 1989, the average annual compensation for hourly employees ranged from $24,700 to $35,200, and in 1994 these figures ranged from $30,200 to $39,500; (8) the restructuring strategies companies have used to adjust to the decreases in DOD procurement have included: (a) acquiring and/or merging with competitors; (b) divesting themselves of units no longer considered to be part of their core business; (c) consolidating production facilities to reduce excess capacity; and (d) commercializing military technologies; (9) the categories of assistance usually available to all separated employees consist of: (a) termination pay based upon salary level and length of service; (b) outplacement services such as job counseling, help on resume writing, interviewing techniques, and listings of job opportunities; and (c) extension of employee health, dental, and insurance benefits for a time period after separation; (10) nine out of the 10 companies GAO surveyed provided incentives to encourage voluntary separation; and (11) the incentives usually included a combination of: (a) years added to age and length of service computations to give the employee a higher retirement annuity; (b) continued medical insurance benefits; and (c) cash buyout.