New Year’s Resolution #5: I will be aware of the executive compensation limit for 2023

January 11, 2023

At a glance

  • The executive compensation limit for government contractors for the year ending December 31, 2023 is $619,000.
  • The calculation is based on the prior year’s compensation limit multiplied by the change in the Employment Cost Index.
  • This cap limits the total compensation costs that can be reimbursed or claimed not only for executives but for all contractors’ employees

The full story:

The executive compensation limit for government contractors, as established by Section 702 of the Bipartisan Budget Act of 2013 (BBA; Pub. L. 113-67, December 26, 2013), for the year ending December 31, 2023, is $619,000.

How the executive compensation limit is determined

The calculation for the allowable compensation limit is based on the prior year’s (PY) compensation limit multiplied by the change in the Employment Cost Index (ECI) prepared by the Bureau of Labor Statistics (BLS). That calculation is illustrated by the formula and calculations below. Please note that in this formula CY = Current Year.

Current FY Cap Amount = Prior FY Cap Amount x CY ECI/PY ECI for all workers as per BLS table 4.

Executive Compensation for Government Contractors
(Based on the 12 months ending September 30th and rounded to the nearest thousand)

    FY  Current FY Cap Amount  Prior FY Cap Amount (CY ECI over PY ECI)   FY  ECI FYE September
Jan 1 – Dec 31 2021 Jan 1 – Dec 31 2022 Jan 1 – Dec 31 2023$568,000 $589,000 $619,000$555,000 $568,000 $589,000X X X1.02389 1.03748 1.05044 2020 2021 2022141.4
146.7
154.1
The fiscal year (FY) for the statutory formula cap amount as determined by the Office of Federal Procurement Policy (OFPP) is the calendar year. If the contractor’s fiscal year does not coincide with the FY for the statutory formula cap amount, the benchmark compensation amount must be adjusted by prorating the statutory cap for each of the two calendar years straddled by the contractor’s fiscal year.

The BBA cap replaced the previous statutory formula cap for contracts awarded as of June 24, 2014. This cap limited the total compensation costs that can be reimbursed or claimed not only for executives but for all contractors’ employees.

Waivers and exceptions to the executive compensation limit

Section 702 also provides for a waiver of the BBA cap amount by the head of an executive agency. One or more narrowly targeted exceptions for scientists, engineers, or other specialists may be established upon a determination that such exceptions are needed to ensure that the executive agency has continued access to needed skills and capabilities.

The Director of the Office of Management and Budget submits an annual report to Congress on any waivers of the BBA cap amounts that are in effect for the fiscal year.

Any compensation cap amount provided by statute, does not limit the amount of compensation that a contractor executive or employee may otherwise receive. The compensation costs in excess of the compensation cap amount are unallowable costs for government contract reimbursement purposes.

The bottom line

Without regard to compensation cap amount, the allowable compensation costs for each affected executive or employee are still subject to the Federal Acquisition Regulation (FAR) cost principles and the Cost Accounting Standards (CAS), as applicable and appropriate to the circumstances (e.g., reasonableness and allocability).

Related Resources/Assets/Aprio.com articles/pages

Office of Management and Budget
BLS ECI Table 4

For more information about executive compensation or incurred cost submissions, contact Aprio’s Government Contract Consulting Services team.