On April 15, 2010, the Office of Federal Procurement Policy (OFPP) of the Office of Management and Budget issued a memorandum establishing the Fiscal Year 2010 limits on allowable executive compensation costs as implemented by FAR 31.205-6(p). Although the benchmark compensation amount does not limit the total amount of compensation that an executive can receive, or establish the amount of executive compensation that will be considered reasonable, it does cap the amount of executive compensation costs that may be charged to government contracts. For FY 2010, the maximum allowable compensation amount is $693,951. This amount applies in subsequent contractor fiscal years, unless OFPP revises it. The benchmark compensation amount applies to contract costs incurred after January 1, 2010, under covered contracts of both defense and civilian procurement agencies.
According to the OFPP memorandum and Section 39 of the OFPP Act, the benchmark compensation determination is made on the median (50th percentile) amount of compensation over a recent 12-month period for the five most highly compensated employees in management positions at each home office and each segment of all publicly-owned companies with annual sales over $50 million. Compensation for the fiscal year includes the total amount of wages, salary, bonuses and deferred compensation for the year, whether paid, earned, or otherwise accruing, as recorded in the employer's cost accounting records for the year.