Federally Funded R&D Centers: Executive Compensation at The Aerospace
Corporation (Letter Report, 02/07/95, GAO/NSIAD-95-75).

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.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  NSIAD-95-75
     TITLE:  Federally Funded R&D Centers: Executive Compensation at The 
             Aerospace Corporation
      DATE:  02/07/95
   SUBJECT:  Contractor personnel
             Fringe benefits
             Executive compensation
             Income statistics
             Salary increases
             Defense cost control
             Cost plus fixed fee contracts
             Contract costs
             Research and development facilities
             Financial management

             
**************************************************************************
* This file contains an ASCII representation of the text of a GAO        *
* report.  Delineations within the text indicating chapter titles,       *
* headings, and bullets are preserved.  Major divisions and subdivisions *
* of the text, such as Chapters, Sections, and Appendixes, are           *
* identified by double and single lines.  The numbers on the right end   *
* of these lines indicate the position of each of the subsections in the *
* document outline.  These numbers do NOT correspond with the page       *
* numbers of the printed product.                                        *
*                                                                        *
* No attempt has been made to display graphic images, although figure    *
* captions are reproduced. Tables are included, but may not resemble     *
* those in the printed version.                                          *
*                                                                        *
* A printed copy of this report may be obtained from the GAO Document    *
* Distribution Facility by calling (202) 512-6000, by faxing your        *
* request to (301) 258-4066, or by writing to P.O. Box 6015,             *
* Gaithersburg, MD 20884-6015. We are unable to accept electronic orders *
* for printed documents at this time.                                    *
**************************************************************************


Cover
================================================================ COVER


Report to Congressional Requesters

February 1995

FEDERALLY FUNDED R&D CENTERS -
EXECUTIVE COMPENSATION AT THE
AEROSPACE CORPORATION

GAO/NSIAD-95-75

Federally Funded R&D Centers


Abbreviations
=============================================================== ABBREV

  FAR - Federal Acquisition Regulation
  FFRDC - federally funded research and development center
  DCAA - Defense Contract Audit Agency
  DOD - Department of Defense
  SMC - Space and Missile Systems Center

Letter
=============================================================== LETTER


B-259373

February 7, 1995

The Honorable William F.  Clinger, Jr.
Chairman
The Honorable Cardiss Collins
Ranking Minority Member
Committee on Government Reform and Oversight
House of Representatives

As requested, we are reviewing the financial and management practices
of The Aerospace Corporation, which operates a federally funded
research and development center (FFRDC) sponsored by the Air Force. 
This report discusses the salary and other benefits provided to
Aerospace's corporate officers and other senior management personnel
and includes information on Defense Contract Audit Agency (DCAA)
audits on Aerospace compensation costs and congressional actions
regarding FFRDC compensation.  This report does not draw conclusions
about the comparability or reasonableness of Aerospace executive
compensation.  As agreed with your offices, we plan to report later
on other issues you asked us to review at Aerospace. 


   RESULTS IN BRIEF
------------------------------------------------------------ Letter :1

As of September 1994, Aerospace employed 32 senior management
personnel (referred to as Aerospace executives), 12 of which were
corporate officers.  The officers' total annual compensation averaged
about $240,200 and their annual salary averaged about $176,400. 
Corporate officers' benefits included a retirement plan that is not
available to senior management personnel or other employees.  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. 

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.  During that time, the average annual executive salary
increased by 23 percent, from about $125,000 to about $153,300. 
Aerospace officials told us 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.  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). 

Between September 1991 and September 1994, the number of nonexecutive
employees at Aerospace decreased by 17 percent, from 3,973 to 3,303. 
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. 

In an audit started in response to Aerospace's June 1992 salary
increases, DCAA initially questioned the reasonableness of corporate
officers' 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.  The Air Force and
Aerospace have been working to resolve the issues raised by DCAA's
audit. 

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.  As
of September 30, 1994, 16 Aerospace executives had annual salaries of
more than $148,400, the current Executive Schedule Level I salary
amount. 


   BACKGROUND
------------------------------------------------------------ Letter :2

Aerospace is a nonprofit mutual benefit corporation that provides
scientific and technical support, principally general systems
engineering and integration services, for the Air Force and other
government agencies.  Aerospace is headquartered in El Segundo,
California, and has offices throughout the United States.  The
corporation, established in 1960, is governed by a 19-member Board of
Trustees in accordance with its articles of incorporation and bylaws. 

FFRDCs are funded solely or substantially by federal agencies to meet
special long-term research or development needs that cannot be met as
effectively by existing in-house or contracting resources.  One
federal agency serves as the primary sponsor and signs an agreement
specifying the purpose, terms, and other provisions for the FFRDC's
existence.  Agreement terms cannot exceed 5 years but can be extended
after a review of the continued use and need for the FFRDC.  Federal
regulations regarding FFRDC policy encourage long-term relationships
between the federal government and FFRDCs to provide the continuity
that will attract high-quality personnel. 

Aerospace's primary sponsor is the Assistant Secretary of the Air
Force for Acquisition.  The Air Force Space and Missile Systems
Center (SMC), located adjacent to Aerospace in El Segundo, has
day-to-day management responsibility.  SMC negotiates annual cost
plus fixed-fee contracts with Aerospace.  The DOD funding ceiling for
Aerospace in fiscal year 1994 was $365.8 million.  Aerospace employed
3,335 personnel at the end of fiscal year 1994 and had an annual
payroll of about $208 million. 

Aerospace's typical practice in establishing compensation levels is
to recommend an annual salary adjustment to the Board of Trustees for
final approval.  According to company policy, such recommendations
are to be based on an assessment of competitive salary positions,
increases and rate structure adjustments at other aerospace industry
firms, and other economic considerations. 

Compensation to Aerospace employees is primarily paid from government
contracts, which represent over 99 percent of the company's total
business revenue.  A small portion is paid out of government contract
fees, nongovernment contracts and fees, interest income, and other
sources. 

Aerospace compensation is reviewed by the Air Force for
reasonableness during its annual contract negotiations.  The Air
Force routinely requests that DCAA review Aerospace's proposed
compensation costs and uses its recommendations during contract
negotiations. 


   TOTAL EXECUTIVE COMPENSATION
------------------------------------------------------------ Letter :3

Aerospace corporate officers, in addition to their annual salary,
receive the standard benefit package that is available to all
employees and several additional benefits that are available only to
them.  Standard benefits include social security contributions, a
retirement plan, medical insurance, dental insurance, long-term
disability insurance, and life insurance.  Additional corporate
officer benefits are a supplemental corporate officers' retirement
plan; personal use of a company automobile; airline upgrade coupons;
and, in the case of two officers, a home security system.  Table 1
summarizes the total fiscal year 1994 compensation provided to
Aerospace's 12 corporate officers and 20 senior managers based on
actual benefits paid and salaries as of September 30, 1994.\1 (See
app.  I for a further breakdown.)



                           Table 1
           
           Total Aerospace Executives Compensation
                   Paid in Fiscal Year 1994


Compensatio                 Average                  Average
n            cost              cost  cost               cost
-----------  -----------  ---------  ------------  ---------
Annual       $2,116,712    $176,393  $2,789,192     $139,460
salary

Standard     179,494         14,958  297,495          14,875
benefits

Other
corporate
officer
benefits:

Retirement   488,000         40,667  \e                   \e
plan \a

Personal     61,534           5,128  \e                   \e
auto use \b

Airline      23,550           1,963  \e                   \e
upgrade
coupons

Home         13,146           1,096  \e                   \e
security
systems \c

============================================================
Total        $765,724       $63,810  $297,495        $14,875
benefits

============================================================
Total        $2,882,436    $240,203  $3,086,687\d   $154,334
compensatio
n
------------------------------------------------------------
Note:  Totals may not add due to rounding. 

\a Current year costs for retired and former corporate officers and
prior year adjustments totaling $219,000 were not included. 

\b Personal automobile use cost of $5,426 was not included for two
former corporate officers. 

\c Home security system cost included $11,544 for the system of one
corporate officer, which was paid in fiscal year 1994 from fees
received on an international contract to cover home security costs
for the period of January 1994 to January 2001. 

\d These costs do not include a one-time hiring bonus of $30,000 for
a senior manager. 

\e Not applicable. 


--------------------
\1 Table 1 describes total Aerospace executive compensation,
including salaries and other benefits.  The FAR defines fringe
benefits as including paid absences; however, we included paid
absences in salary.  Therefore, for this reason and other methodology
differences, the total benefits shown in table 1 and appendix I are
different than they would be using the strict FAR definition. 


      EXECUTIVE SALARIES
---------------------------------------------------------- Letter :3.1

From September 1991 to September 1994, the average annual salary for
all Aerospace executives (corporate officers and senior management
personnel) increased by 23 percent, from about $125,000 to about
$153,300.  The average salary for corporate officers increased from
about $135,100 to about $176,400, or 31 percent, and the average
salary for senior managers increased from about $115,000 to about
$139,500, or 21 percent.  During those 3 years, the total cost of
salaries for 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. 
Salaries included paid absences, such as vacations, holidays, and
sick leave.  Table 2 shows the number and total salaries of Aerospace
executives as of September 1991 and September 1994 and the percent
increase for both. 



                                     Table 2
                     
                       Increase in Number of Executives and
                      Salary Cost Between September 1991 and
                                  September 1994


                                   Total               Total
                                  annual              annual              Annual
                                  salary              salary              salary
Type of executive\a   Number        cost  Number       costs  Number        cost
--------------------  ------  ----------  ------  ----------  ------  ----------
Corporate officer         11  $1,486,500      12  $2,116,700       9          42
Senior manager            11   1,264,200      20   2,789,200      82         121
================================================================================
Total                     22  $2,750,700      32  $4,905,900      45          78
--------------------------------------------------------------------------------
\a All managers at pay levels 5 through 7. 

Aerospace increased the average salary of its executives by about 18
percent in 1992, from about $132,900 to about $156,600.  Most of this
increase occurred by implementing a special, one-time increase in
June 1992 that averaged 13 percent and by giving a merit pay increase
in December 1992.  (See app.  II for more details.)

Aerospace justified the June 1992 pay increase based on the need to
bring its salaries more in line with industry salaries and resolve a
pay compression problem that had developed between technical staff
managers and their subordinates.  Although Aerospace notified the Air
Force 3 weeks before implementing the increase, the Air Force
expressed concern that Aerospace did not present the salary increase
and supporting documentation to the government in time to allow the
Air Force to review the increase and determine its reasonableness. 

According to the Air Force, the salary increase represented a major
change to Aerospace's compensation package and the process used by
Aerospace was inconsistent with SMC's environment of trust and
teamwork.  Even though the Air Force allowed the salary increase, it
requested a DCAA audit of Aerospace's compensation and warned
Aerospace that the government would request full reimbursement of any
costs determined to be unreasonable. 

Aerospace told us that it believes that SMC's environment of trust
and teamwork has continued throughout this period and that it
notified the Air Force immediately after its Board of Trustees
approved the salary adjustment, which was based on a sound business
position and the best information available at the time.  Aerospace
also noted that the FAR does not mandate prior contracting officer
review; it only mandates that there will be no presumption of
allowability when a contractor introduces major revisions of existing
compensation plans and has not notified the contracting officer
either before implementation or within a reasonable period after
implementation.  Aerospace maintained that the salary increase did
not represent a major revision to its existing compensation plan. 
Further, Aerospace advised us that the salary adjustment occurred
during fiscal years 1992-93, when it was confidently looking toward
an increased budget and workload.  Even though an unanticipated
downturn in Aerospace employment occurred, the increase only restored
salaries to market levels, in Aerospace's view.  However, Aerospace
records provided to us showed that, before the June 1992 salary
increase, Aerospace reduced its employment by 423 (272 technical
staff and 151 nontechnical staff) through a reduction in force in
November 1990 and a retirement incentive program in November 1991. 

No merit salary increases were given in December 1993, but 13
executives received additional salary increases since December 1992
through 13 promotions. 

From September 1991 to September 1994, Aerospace increased the number
of its executives by 45 percent, from 22 to 32.  During the same
period, Aerospace nonexecutive employment decreased by about 17
percent, from 3,973 to 3,303.  As a result, the ratio of executives
to nonexecutive employment decreased from 1 per 181 employees to 1
per 103 employees.  Aerospace did not, and is not required by the
past or current contracts to, obtain Air Force approval for changing
the number of executives.  Table 3 compares the number of executives
and the total number of employees since September 1991. 



                           Table 3
           
           Aerospace Employment from September 1991
                      to September 1994


Type of
employee
----------  ----------  ----------  ----------  ------------
Corporate       11          12          12           12
 officer
Senior          11          14          17           20
 manager
Total           22          26          29           32
 executives
Total         3,973       3,770       3,739        3,303
 other
 employees
Number of      181         145         129          103
 other
 employees
 per
 executive
------------------------------------------------------------
Aerospace gave us many reasons for increasing the number of
executives, including satisfying customer requirements and customer
reorganizations and its continuing efforts to improve customer
support.  For example, when the SMC chief engineer position was
expanded to emphasize horizontal engineering and integrated product
teams, Aerospace said it added a corporate chief engineer to
interface with SMC's chief engineer.  Also, it said that a general
manager position was created in its Colorado division to improve
support to the U.S.  Space Command and the Air Force Space Command
and consolidate seven different Aerospace organizational units at
that division.  Aerospace cited other factors, such as more robust
succession planning and creating a senior manager position to better
distinguish FFRDC and non-FFRDC activities, in response to recent
congressional focus on FFRDC activities.  It also concluded that
increasing the number of senior managers would increase the leverage
of the corporate officers.  Aerospace noted that, even though the
number of executives increased, the total number of managers
decreased and the cost per member of the technical staff decreased. 
Aerospace further concluded that the pressure to downsize programs
required adding some higher level managers with a broader perspective
to support the Air Force and that the total number of employees
decreased because of funding ceilings, not workload. 


      HIRING BONUSES
---------------------------------------------------------- Letter :3.2

In 1993, Aerospace paid two executives hiring bonuses of $30,000
each.  Aerospace informed us that the hiring bonuses were needed,
over and above an initial annual salary of $155,000, to hire these
two individuals and that the special circumstances of each offer were
reviewed and approved by Aerospace's Board of Trustees. 

Aerospace initially reported these two hiring bonuses as
government-reimbursable costs in June and October 1993. 
Subsequently, Aerospace reclassified these costs as nonreimbursable
expenses in accordance with the FAR in July 1994 and December 1993,
respectively.  Aerospace commented that these were one-time bonuses
that were paid in only two special cases for employees that had
successfully discharged important responsibilities. 


   DCAA AUDIT OF AEROSPACE
   COMPENSATION COSTS
------------------------------------------------------------ Letter :4

After the Air Force's request in June 1992, DCAA initiated a review
of Aerospace's compensation.  On December 9, 1993, DCAA issued its
report, which was subsequently revised three times.\2 DCAA compared
Aerospace positions with comparable compensation market survey data
and used FAR criteria to initially conclude that Aerospace had
provided $616,846 and $4,092,954 in unreasonable compensation for
fiscal years 1992 and 1993, respectively.  The FAR criteria call for
general conformity with compensation practices of other firms of the
same size, in the same industry, and in the same geographic area that
are engaged in predominantly nongovernment business.\3

Aerospace objected to the comparable compensation market survey DCAA
used because it included a number of industries and corporations that
Aerospace judged had no comparability to the technical education and
experience of the FFRDC staff.  Aerospace's objection was that the
FAR provides, in part, that the relevant fact is the general
conformity with the compensation practice of other firms of the same
size, industry, and geographic area.  Aerospace noted that its own
compensation survey included companies with which it competes for
scientific and engineering talent. 

Aerospace also objected to the market compensation survey data used
by DCAA because it did not include bonuses and other monetary
compensation of the comparison group.  Since Aerospace officers do
not receive performance bonuses, Aerospace informed DCAA in December
1993 that all renumeration must be used for a valid comparison.  DCAA
agreed and, as a result of using additional data, issued a revised
report in January 1994, which no longer questioned the reasonableness
of corporate officers' salaries and reduced the compensation costs
considered unreasonable for other employees.  DCAA made further
revisions to its report in February and March 1994 to (1) use more
current compensation market survey data; (2) challenge, rather than
classify as unreasonable, corporate officer fringe benefit costs
because Aerospace had not performed a fringe benefit market survey to
justify the costs; and (3) adjust the amount of unreasonable
compensation to include only that portion of fringe benefits costs
that were determined based on a percentage of base salaries. 

DCAA's fourth and final memorandum reduced the costs classified as
unreasonable compensation to $306,809 and $1,788,612 for fiscal years
1992 and 1993, respectively.  DCAA informed us that these revisions
were done after consideration of additional, more current
information.  In addition, the final report also challenged
$2,124,291 for fiscal year 1993 due to the lack of adequate
supporting documentation.  DCAA's final memorandum also stated that
Aerospace should have provided the government an opportunity to
review the reasonableness of the June 1992 increase.  DCAA concluded
that it was unreasonable for Aerospace to increase salaries by a
significant percentage at a time when other industries were
implementing cost-saving measures and planning smaller salary
increase budgets in response to DOD downsizing and other economic
conditions that have resulted in major cutbacks of employees. 
Appendix III summarizes the four DCAA products. 

Aerospace objected to each of DCAA's products, including the final
one.  It concluded that, despite some improvements, DCAA still used
inappropriate data and reached erroneous conclusions.  Aerospace also
said that DCAA's statements were unsupported opinions and that its
actions to redress the then-existing salary situation were entirely
reasonable.  In addition, Aerospace stated that it had complied with
FAR requirements by providing the government with notice of the
salary increase before implementation. 

After the DCAA compensation audit reports and subsequent fiscal year
1994 contract negotiations between the Air Force and Aerospace,
additional provisions were placed in the fiscal year 1994 contract
with Aerospace for determining reasonable technical staff
compensation costs.  First, the Air Force and Aerospace agreed that
about $1.4 million of Aerospace's billings would not be paid until
the Air Force determined the reasonableness of the cost of
Aerospace's supervisory and nonsupervisory technical staff salaries. 
To assist the Air Force in making this determination, Aerospace was
to provide current and accurate job descriptions and use a
compensation market survey agreed to by the government.  Second,
Aerospace was to commission an independent survey to establish a
reasonable executive fringe benefit level.  Third, to resolve the
notification issue, Aerospace is to notify the contracting officer at
least 60 days before announcing any major salary adjustment that was
not planned or included in the estimated contract cost.  As of
December 1994, Aerospace and government contracting representatives
were in the process of implementing these contractual provisions and
clarifying the computation of Aerospace executive fringe benefits. 
According to the Air Force, the compensation market survey has been
completed and the results are being reviewed. 


--------------------
\2 DCAA issued two supplemental audit reports and one memorandum,
each updating the findings in the December 9, 1993, report.  DCAA
said that these revisions were in response to additional, more
current information provided by Aerospace.  The memorandum directed
that 18 pages of the prior supplemental report be replaced because of
an error found in a calculation. 

\3 DCAA's audit involved reviewing the compensation of Aerospace's
corporate officers, managers of members of the technical staff, and
certain nonsupervisory personnel for a total of 104 positions. 


   CONGRESSIONAL ACTIONS REGARDING
   FFRDC COMPENSATION
------------------------------------------------------------ Letter :5

DOD's FFRDCs are privately operated contractors of the United States,
and the salaries of officers and employees have not generally been
subject to federal government pay scales.  However, the Congress has
at times restricted the use of DOD appropriations to pay compensation
of FFRDC officers or employees over certain levels and has imposed
notice requirements concerning certain payments.  In the Fiscal Year
1995 DOD Appropriations Act, the Congress placed a limit on defense
FFRDC compensation after July 1, 1995.  The act states that no
employee or executive officer of a defense FFRDC can be compensated
from DOD appropriations at a rate exceeding Executive Schedule Level
I.  The act's legislative history indicates that the July 1, 1995,
date was selected to allow individuals affected by the compensation
limitation to adjust to its impact.  As of September 30, 1994, there
were 16 Aerospace executives with annual salaries of more than
$148,400, the current Executive Schedule Level I salary amount. 

The National Defense Authorization Act for Fiscal Year 1995 requires,
in part, that DOD funds may not be paid to an FFRDC unless it enters
into an agreement with DOD that no officer or employee who is
compensated at an annual rate that exceeds Executive Schedule Level I
will be compensated in fiscal year 1995 at a higher rate than in
fiscal year 1994 and that no such officer or employee will be paid a
bonus or provided any other financial incentive in fiscal year 1995. 
This act also requires the DOD Inspector General to review
compensation paid by FFRDCs to all officers and employees who are
paid at a rate exceeding the Executive Schedule Level I rate. 
According to the act, the Inspector General is to (1) assess the
validity of the data submitted by FFRDCs, justifying salaries that
exceed the Executive Schedule Level I rate; (2) compare the
compensation paid to those individuals exceeding that rate with the
compensation of similar technical and professional staff from profit
and nonprofit organizations that must compete for defense work and
with government officials of comparable expertise and responsibility;
and (3) examine other appropriate forms of nonsalary compensation,
such as bonuses and retirement plans.  The results of the Inspector
General's review are to be reported to the Senate and House
Committees on Armed Services no later than May 1, 1995. 

We are also reviewing compensation at FFRDCs sponsored by DOD, as
required by the Fiscal Year 1992 Defense Appropriations Conference
Report.  This review will collect data on compensation for selected
professional, technical, and managerial employees, not just the
highest paid executives, as discussed in this report. 


   SCOPE AND METHODOLOGY
------------------------------------------------------------ Letter :6

To determine the compensation Aerospace provided corporate officers
and senior managers, we reviewed Aerospace personnel and payroll
records, Board of Trustees' minutes and resolutions, contract
documents, accounting records related to executive benefit costs, and
policies and procedures that relate to Aerospace's compensation
program.  We also reviewed DCAA compensation audit reports,
supporting workpapers, and Aerospace's responses to the audit
reports.  In addition, we met with Aerospace's compensation and
benefits officials, Air Force program and contract administration
officials responsible for overseeing the work at Aerospace, and
cognizant DCAA officials. 

We conducted our work from April to December 1994 in accordance with
generally accepted government auditing standards.  As agreed with
your office, we did not obtain written agency comments on a draft of
this report.  However, we discussed our results with officials from
DOD and Aerospace and included their comments where appropriate. 


---------------------------------------------------------- Letter :6.1

We are sending copies of this report to the Secretary of Defense; the
Director, Office of Management and Budget; the Administrator, Office
of Federal Procurement Policy; and other interested congressional
committees.  Copies will also be available to others on request. 

Please contact me at (202) 512-4587 if you or your staff have any
questions concerning this report.  Major contributors to this report
are listed in appendix IV. 

David E.  Cooper
Director, Acquisition Policy, Technology,
 and Competitiveness Issues


AEROSPACE EXECUTIVE COMPENSATION
FOR FISCAL YEAR 1994
=========================================================== Appendix I

                                                     Average
                                   Average             total
                                    annual  bene  compensati
Number in position                salary\e  fits          on
----------------------------  ------------  ----  ----------
Corporate officers
------------------------------------------------------------
1                                 $265,000  $149    $414,691
                                            ,691
                                              \a
1                                  202,400  48,6     251,091
                                              91
3                                  181,467  55,1     236,576
                                              09
1                                  155,012  70,1     225,133
                                              21
5\b                                161,980  53,0     215,068
                                              88
1                                  140,000  66,4     206,456
                                              56

Senior managers
------------------------------------------------------------
1\c                                181,100  14,9     196,053
                                              53
15\d                               140,443  15,4     155,926
                                              83
2                                  132,220  12,6     144,894
                                              74
1                                  125,000  12,6     137,634
                                              34
1                                  112,000  12,3     124,313
                                              13
------------------------------------------------------------
\a Included in the benefit cost is a corporate officer retirement
plan cost of $117,000.  This plan exceeds the amounts paid to other
executives, since it is based on salary, number of years until age
62, and time as a corporate officer. 

\b Two newly appointed corporate officers were not included in the
corporate officer retirement plan cost for fiscal year 1994 because
they became officers after the cost had been assigned.  A cost
adjustment will be made in fiscal year 1995. 

\c Corporate officer retirement plan cost of $15,000 and personal use
of company auto cost of $4,821 associated with time as a corporate
officer are not included. 

\d Retirement plan cost of $10,000 for one senior manager that was
previously a corporate officer is not included. 

\e As of September 30, 1994. 


EXECUTIVE SALARY INCREASES BETWEEN
DECEMBER 1991 AND DECEMBER 1992
========================================================== Appendix II


                                                           Percent      Range of
                         Average             Average   increase in        salary
Type of                   annual              annual       average       percent
executive     Number      salary  Number      salary        salary    increase\a
------------  ------  ----------  ------  ----------  ------------  ------------
Corporate         11    $144,327      12    $174,167            21      11 to 29
 officer
Senior            11     121,427      15     142,600            17       0 to 25
 manager
================================================================================
Total             22    $132,877      27    $156,630            18       0 to 29
--------------------------------------------------------------------------------
\a Range is only for executives that were in place as of both dates. 


SUMMARY OF DCAA'S COMPENSATION
AUDIT REPORTS
========================================================= Appendix III


Issue
----------  ----------  ----------  ----------  ------------
Fiscal year 1992 costs
(unreasonable compensation)
------------------------------------------------------------
Corporate    $188,737       0           0            0
 officers
Technical    428,109     $384,383    $384,383     $306,809
 staff
 managers\
 b
============================================================
Total        $616,846    $384,383    $384,383     $306,809

Fiscal year 1993 costs
(unreasonable compensation)
------------------------------------------------------------
Corporate    $67,388        0           0            0
 officers
Corporate    804,854     $804,854       0            0
 officers
 fringe
 benefits
Technical   2,290,291   1,445,026   $1,417,330   $1,133,666
 staff
 managers\
 b
Technical    930,421     876,185     818,825      654,946
 staff
 non-
 superviso
 rs\b
============================================================
Total       $4,092,954  $3,126,065  $2,236,155   $1,788,612

Compensation challenged
------------------------------------------------------------
Corporate       \c          \c      $1,688,579   $1,688,579
 officers
 fringe
 benefits
Positions       \c          \c       435,712      435,712
 with no
 position
 descripti
 ons
 available
============================================================
Total           \c          \c      $2,124,291   $2,124,291
------------------------------------------------------------
\a DCAA issued its audit report on December 9, 1993.  DCAA then
issued two supplemental reports on January 26, 1994, and February 18,
1994, and one memorandum on March 17, 1994, which was issued to
correct a computation in the supplemental report. 

\b The senior manager category discussed in this report is included
in these DCAA categories but is not comparable, since DCAA included
personnel below pay level 5. 

\c Not applicable. 


MAJOR CONTRIBUTORS TO THIS REPORT
========================================================== Appendix IV

NATIONAL SECURITY AND
INTERNATIONAL AFFAIRS DIVISION,
WASHINGTON, D.C. 

Charles W.  Thompson

OFFICE OF GENERAL COUNSEL,
WASHINGTON, D.C. 

Ernie E.  Jackson

LOS ANGELES FIELD OFFICE

Odi Cuero
Benjamin H.  Mannen
Ambrose A.  McGraw

