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Richard B. O'Keeffe Jr.
Wiley Rein LLP

Mr. O'Keeffe is Of Counsel in the Government Contracts practice at Wiley Rein LLP. He has more than 14 years of experience handling all aspects of federal procurement matters. He is well-versed in all stages of federal contract law and litigation, including terminations, procurement disputes, protests, procurement integrity and suspensions and debarments. Mr. O'Keeffe's experience includes controversial, high-visibility cases, including complex litigation and more than 200 adversarial proceedings, as well as establishing and managing ethics programs for federal procurement policies and innovative agency protest procedures.
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Surviving an Executive Compensation Review under the Federal Acquisition Regulation (“FAR”): Part 3

by Richard B. O'Keeffe Jr. and William A. Roberts III, Apr 06, 2009

The High Cost of Inaction: Part 3
In the second of this five-part series, we discussed the importance of maintaining current, accurate and complete position descriptions for company senior executives in order to promote fair consideration of the executives’ contributions to a company’s success. In this installment, we consider another way to ensure, through careful documentation and prudent decision-making, that a company’s executive compensation practices receive a fair shake from DCAA. To do this, it is critical to show that the company is successful, because the DCAA generally believes that more successful companies are entitled to pay their executives higher salaries. Read on as we consider the importance of being able to prove that the company is so successful that it can reasonably choose to pay top dollar for executive talent.

Compile Current, Complete and Accurate Data on Company Performance. The DCAA may, if requested, analyze a company’s financial performance to determine whether the company should be “marketed” at higher than the median or 50th percentile compensation level. In most cases, there is a substantial difference in reasonable compensation level between companies at the 50th and 75th percentiles. Thus, companies should:

• Assert, if accurate, that company performance is above the median. The DCAA will not undertake a performance analysis unless specifically requested to do so, and will otherwise use the 50th percentile as a default position. Therefore, companies must request that the DCAA evaluate financial performance.

• Be prepared to discuss financial performance with the DCAA to argue for marketing at higher percentiles. The DCAA typically looks at metrics such as sales growth, return on sales, return on assets and return on equity, and compares the company to others in its peer group. It is essential that unique circumstances unrelated to company performance affecting any of these metrics in a given market or fiscal year be well documented, and that these be brought to DCAA’s attention early in the process.

• Returns on sales, assets and equity can be highly sensitive to discretionary management decisions, and significant improvement in these metrics is often possible. The DCAA, unfortunately, does not take this into account in evaluating a company’s financial performance in its peer group. Therefore, if justifying high levels of executive compensation is very important to a company, it may want to consider the legitimate ways that these measures of financial performance can be improved through timely accounting decisions.

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