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Audit Recommends Slashing Pentagon Incentive Pay for Defense Execs

JOHN DIAMONDJanuary 16, 1996

WASHINGTON (AP) _ The Pentagon should cut in half a proposed $31 million taxpayer-funded payment to executives at the nation’s largest defense contractor, government auditors say.

First proposed last March, the deal drew fire from critics who saw it as a sweetheart bonus to highly paid executives for engineering a merger that led to 35,000 layoffs at Lockheed Martin Corp.

An audit by the Defense Contract Audit Agency concluded that 440 Lockheed Martin executives should collect $16 million in ``accelerated incentive payments.″ The finding, first reported Tuesday by the weekly newspaper Defense Week, represents just over half the amount the contractor and Pentagon officials agreed to last year.

In addition, the audit agency concluded in a separate review that $4 million of $13.4 million that Martin paid to its top five executives in fiscal 1994 was ``unreasonable″ and should not be reimbursed by the government. Both audits were completed last month.

The Pentagon’s inspector general must approve the audits for the lower figures to go through. Language inserted by Rep. Bernie Sanders, I-Vt., in this year’s defense appropriations law also could bar payment of any government money to corporate executives for bonuses or merger-related compensation.

``It’s my view that not one penny should be paid to the CEOs or the members of the board, and it is our expectation that the inspector general will concur with us,″ Sanders said in a telephone interview. ``This whole issue of corporate welfare within the defense industry is something that many of us intend to pursue a good deal further.″

Susan Hansen, a Pentagon spokeswoman, said a review by the inspector general has no timetable for final review.

``There may be dollar amounts questioned,″ Hanson said of the audit. ``That doesn’t mean that they’ve broken the law.″

The $10 billion merger last March of Lockheed Corp. and Martin Marietta Corp. formed the world’s largest defense and aerospace company. The Pentagon supported the merger with the argument that greater efficiencies and consolidation in defense industries would lead to lower prices for weapons.

In part as a result of the merger, Norman Augustine, former Martin Marietta chief and now the chief executive officer of Lockheed Martin, was to receive $8.2 million in bonuses. Other executives were to receive lesser but still hefty bonuses. In all, the deal involved $92 million in bonuses and incentive pay to Martin executives, with two-thirds paid from corporate funds and $31 million from the Pentagon.

The audit by the Defense Contract Audit Agency appears at least partially to support a position shared by the Pentagon and Lockheed Martin: that the government would have paid the executives with or without a merger under terms of existing defense contracts. The bulk of the proposed government payments, the audit concluded, was ``for services performed prior to the merger.″

Lockheed Martin has reluctantly accepted the audit’s conclusions.

``The corporation continues to be convinced that its claim is both proper and justifiable,″ A.M. DiPasquale, Lockheed Martin’s financial management director, wrote in a letter to defense officials.

But he added: ``This issue has become a sufficient distraction from our everyday task of serving our customers and shareholders that we have concluded it is in the best interest of all involved to simply bring the matter to an end.″

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