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Corduroy Frog

Excessive Salaries

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Excessive Officer salaries have been considered Unallowable Cost.  One of the figures I've heard would be an excess of $400,000.

Can a salary be considered excessive under other conditions, e.g. more than 10% of revenue, or something similar?

I would like to move some Officer salary to unallowable to reduce G&A rates...

 

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CR, have you looked at FAR 31.205-6(p)?  Contracts awarded after June 24, 2014 have been subject to a universal compensation cap described in that section.  The cap applies to each employee and currently is $525K.  In addition to the compensation cap, compensation must be reasonable under FAR 31.201-3 and 31.205-6(b).  Thus, even if compensation is below the cap, it may still be unreasonable and unallowable.

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5 hours ago, Corduroy Frog said:

I would like to move some Officer salary to unallowable to reduce G&A rates...

Contractors certainly have that option and the government will, generally, thank them for the voluntary reduction. However, I'm of the opinion that there are better ways to reduce G&A rates besides reducing bottom-line profit. For example,

-- Review the G&A base to make sure it complies with CAS 410 requirements

-- Review the G&A expense pool to make sure it complies with CAS 410 requirements

-- Create a deferred comp plan for executives

-- Move marketing to a commission-based paradigm

-- Reduce executive office space

Hope this helps.

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Thanks for the responses. 

In the event none of the CAS or FAR prompts such as reclassification, may the contractor do so unprompted and of his/her own volition?

"Here2Help" thanks for the conversation.  We have explored many alternatives, but the executive salary is the elephant in the room.  Officer contends that the SBA is requiring payment over and above everyone else in the company.

 

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