Federally Funded R&D Centers

The Aerospace Corporation runs a federally funded research and development center sponsored by the Air Force. As of September 1994, Aerospace employed 32 executives, 12 of whom were corporate officers. The officers' total compensation averaged about $240,000, and their annual salary averaged about $176,000. From September 1991 to September 1994, total salary cost for all Aerospace executive rose 78 percent, primarily due to raises of up to 29 percent for individual executives in 1992 and a 45-percent increase in the number of executives from 1991 to 1994. In addition, Aerospace paid executives hiring bonuses of $30,000 each in 1993. In an audit started in response to Aerospace's June 1992 salary increases, the Defense Contract Audit Agency (DCAA) initially questioned the reasonableness of the salaries and fringe benefits. In its final report, however, DCAA no longer questioned the reasonableness of corporate officers' salaries but recommended that Aerospace provide further support for corporate officers' fringe benefits.

GAO found that: (1) as of September 1994, Aerospace employed 32 senior management personnel (referred to as Aerospace executives), 12 of which were corporate officers; (2) the officers' total annual compensation averaged about $240,200 and their annual salary averaged about $176,400; (3) corporate officers' benefits included a retirement plan that is not available to senior management personnel or other employees; (4) the total annual compensation for the other 20 Aerospace executives that were not corporate officers averaged about $154,300 and their annual salary averaged about $139,500; (5) from September 1991 to September 1994, total salary cost for all Aerospace executives increased by 78 percent, from about $2.75 million to about $4.91 million, primarily due to salary increases of up to 29 percent for individual executives during 1992 and a 45-percent increase in the number of executives from 22 to 32 between 1991 and 1994; (6) during that time, the average annual executive salary increased by 23 percent, from about $125,000 to about $153,300; (7) Aerospace officials told GAO that increasing both the salaries and the number of executives were sound management decisions based on the best information available at the time and were justified for a number of reasons, including to better align Aerospace with its customers; (8) in addition, in 1993, Aerospace paid two executives hiring bonuses of $30,000 each. Aerospace classified these bonuses as nonreimbursable costs, consistent with the Federal Acquisition Regulation (FAR); (9) between September 1991 and September 1994, the number of nonexecutive employees at Aerospace decreased by 17 percent, from 3,973 to 3,303; (10) this decrease, coupled with the increase in the number of executives, reduced the ratio of executives to total nonexecutive employees from 1 per 181 employees to 1 per 103 employees; (11) in an audit started in response to Aerospace's June 1992 salary increases, the Defense Contract Audit Agency (DCAA) initially questioned the reasonableness of corporate officers' salaries and fringe benefits; (12) in its final report, however, DCAA no longer questioned the reasonableness of corporate officers' salaries but recommended that Aerospace provide further support for corporate officers' fringe benefits; (13) the Air Force and Aerospace have been working to resolve the issues raised by DCAA's audit; (14) fiscal year 1995 appropriations legislation limits employee compensation at the Department of Defense (DOD) FFRDCs, effective July 1, 1995, to a rate not to exceed Executive Schedule Level I; and (15) as of September 30, 1994, 16 Aerospace executives had annual salaries of more than $148,400, the current Executive Schedule Level I salary amount.