Defense Contractors:

Pay, Benefits, and Restructuring During Defense Downsizing

NSIAD-96-19BR: Published: Oct 10, 1995. Publicly Released: Nov 9, 1995.

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Pursuant to a congressional request, GAO provided information on the top 10 Department of Defense (DOD) contractors, focusing on: (1) executive and employee compensation and executive stock options; (2) the nature and extent of these contractors' restructuring efforts in response to defense downsizing; and (3) the assistance provided to workers separated because of defense contractor downsizing.

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.

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