Defense contractors increasing dividends and buybacks while reducing R&D
Enormous Pentagon budgets are also inflating CEO pay at major military contractors. (Getty Images)
Does anyone have a sweeter deal than military contractor CEOs?
The United States spent more last year on defense than the next 10 nations combined. A deal just brokered by the White House and House Republicans increases that amount even further — to $886 billion. Defense contractors will pocket about half of that.
Just eight years ago, the national defense community made do with over $300 billion less. But making do with “less” doesn’t come easy to corporate titans like Dave Calhoun, the CEO at Boeing, the nation’s second-largest defense contractor.
In March, Boeing’s annual filings revealed that Calhoun had missed his CEO performance targets and would not be receiving a $7 million bonus. As a result, Calhoun had to be content with a mere $22.5 million in 2022 — but to sweeten the deal, the Boeing board granted their CEO an extra stack of shares worth some $15 million at today’s value.
The Government Accountability Office may have had incidents just like that in mind when it urged the Pentagon to “comprehensively assess” its contract financing arrangements a few years ago.
This past April, the Department of Defense finally attempted to do it.
“In aggregate,” its report concludes, “the defense industry is financially healthy, and its financial health has improved over time.” But despite “increased profit and cash flow,” the DoD found, corporate contractors have chosen “to reduce the overall share of revenue” they spend on R&D.
Instead, they’re “significantly increasing the share of revenue paid to shareholders in cash dividends and share buybacks.” Those dividends and buybacks have jumped by an astounding 73 percent!
Contractor CEOs have been lining their pockets accordingly.
In 2021, the most recent year with complete stats, the nation’s top five weapons makers — Lockheed Martin, Boeing, Raytheon, General Dynamics, and Northrop Grumman – grabbed over $116 billion in Pentagon contracts and paid their top executives $287 million, Pentagon-watcher William Hartung noted this past December.
Taxpayers subsidize these more-than-ample paychecks. Corporate giants like Boeing and Raytheon depend on government contracts for about half the dollars they rake in. For Lockheed Martin, General Dynamics, and Northrop Grumman, it’s at least 70 percent.
“Huge CEO compensation,” Hartung observes, “does nothing to advance the defense of the United States and everything to enrich a small number of individuals.”
Even before Biden and Republicans agreed to increase spending, the National Priorities Project at the Institute for Policy Studies (IPS) calculated the “militarized portion” of the federal budget at 62 percent of all discretionary spending.
We have precious little to show for this enormous expenditure.
“The post-9/11 ‘war on terror,’ for example, has cost more than $8 trillion and contributed to a horrific death toll of 4.5 million people in affected regions,” the IPS report notes. “Meanwhile, a U.S. military budget that outpaces Russia’s by more than 10 to 1 has failed to prevent or end the Russian war in Ukraine.”
So what can we do? The IPS analysts advocate reducing the national military budget by at least $100 billion and reinvesting the savings in social programs.
Progressive members of Congress, meanwhile, have also been pushing for a major change in contracting standards. Rep. Jan Schakowsky’s “Patriotic Corporations Act” would give companies with smaller pay gaps between their CEOs and workers a leg up in the bidding for federal defense contracts.
Or we could go the FDR route. In the year after Pearl Harbor, FDR issued an order limiting top corporate executive pay to $25,000 after taxes — a move Roosevelt said was needed “to correct gross inequities and to provide for greater equality in contributing to the war effort.”
By the war’s end, America’s wealthy were paying federal taxes on income over $200,000 at a 94 percent rate. That top rate hovered around 90 percent for the next two decades and helped give birth to the first mass middle class the world had ever seen.
Miracles can happen.
This column originally appeared in OtherWords.org
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