Trump Caps Defense CEO Pay at $5 Million

President Donald Trump signed an executive order on Wednesday targeting defense contractors. The order aims to regulate executive pay and ban stock buybacks until production goals are met. In a post on Truth Social, the President proposed capping CEO compensation at $5 million. This move is intended to shift focus from corporate profits to the speed of innovation and military readiness.

The executive order outlines new rules for future contracts. It prevents executive base salaries from rising if the Secretary of War is unsatisfied with a company's performance. Additionally, compensation will be linked to on-time delivery and increased production rather than short-term financial metrics. These changes come as the administration plans to significantly increase the defense budget in the coming years.

President Trump signed the executive order to overhaul how defense companies are compensated. The primary objective is to increase the speed of innovation within the defense sector. The order explicitly bans stock buybacks and dividends for contractors who fail to produce superior products on time and within budget.

The administration intends to align executive incentives with military needs. The order stipulates that in future contracts, compensation must not be tied to short-term financial metrics. Instead, pay will be linked to specific operational improvements. Key provisions include:

• A ban on stock buybacks and dividends until production targets are met.
• Executive base salary caps if performance is deemed unsatisfactory by the Secretary of War.
• Compensation linked to on-time delivery and increased production capabilities.

The goal is to ensure that defense contractors prioritize the delivery of vital equipment to the military over maximizing shareholder value.

On Truth Social, President Trump criticized the current pay structures of defense industry leaders. He described executive pay packages as "exorbitant and unjustifiable" given the slow delivery of equipment to the military. He argued that salaries, stock options, and other forms of compensation are far too high for these executives.

Trump proposed that no executive should earn "in excess of $5 million" until production speed improves. However, the executive order itself did not codify this exact dollar amount as a hard cap. The proposed figure stands in stark contrast to the actual earnings of top defense CEOs in 2024.

The leaders of the big five defense contractors—Lockheed Martin, RTX, Northrop Grumman, Boeing, and General Dynamics—each earned more than $18 million in total compensation in 2024. Their income included salary, incentives, stock options, and other benefits. While these figures exceed the proposed $5 million cap, the President noted that they pale in comparison to CEOs in other sectors, such as technology and retail.

The compensation for defense industry leaders is substantial, though it lags behind other sectors. In 2024, the CEOs of the top five defense contractors each took home more than $18 million. This total encompasses a mix of salary, incentives, stock options, and changes in pension fund values.

Despite the high numbers, dozens of CEOs in other industries earned significantly more. For example:

• James Robert Anderson of Coherent earned over $100 million.
• CEOs of Starbucks, GE, and Microsoft each earned more than $75 million.

The President's proposed $5 million cap would represent a drastic reduction for the defense sector. The administration argues that this reduction is necessary to realign corporate priorities with national security interests.

The executive order had an immediate impact on the market. Following the signing, defense stocks initially dropped. However, they rebounded on Thursday morning after President Trump announced plans to increase the military budget to $1.5 trillion by 2027. This proposed increase is up from the record $901 billion budget for 2026.

Industry reactions have been mixed. A spokesperson for Lockheed Martin issued a statement saying the company "shares President Trump's and the Department of War's focus on speed, accountability, and results." The company committed to continuing investment and innovation to ensure military advantage.

Conversely, Boeing and General Dynamics declined to comment on the order. Northrop Grumman and RTX did not immediately respond to requests for comment. The order signals a significant shift in the relationship between the government and major defense contractors.