Since 1995, Congress has limited the ability of federal defense contractors have been limited in their ability to expense the federal government for “senior executive” compensation pursuant to a federal regulatory benchmarking limitation. For employees failing outside the definition of “senior executive” -- essentially the executives named in the proxy statement -- contractors have had the ability to charge the government for reasonable employee compensation expenses. However, in 2012, the National Defense Authorization Act, expanded the regulatory benchmarking limitation for federal defense contractors from applying only to “senior executives of the contractor” to “any contractor employee” effectively capping the compensation expense for all employees at the statutory amount that previously applied only to senior executive compensation. While it may be reasonable to cap the amount companies can charge for senior executive compensation, limiting the compensation of all senior management and highly skilled individuals raises significant questions about the ability of defense contractors to recruit and maintain top talent. The statutory changes provide the Secretary of Defense some flexibility to provide a narrowly targeted exception for certain scientists and engineers where a competitive need is shown, however the Center questions whether the process for obtaining the exception will occur quick enough to allow crucial positions to be fulfilled in a timely manner. Although these limitations currently only apply to defense contractors, proposals have surfaced to limit reimbursement of compensation for all government contractors.