WASHINGTON -- The Clinton administration has agreed to use $31 million in taxpayer money to pay a third of the $92 million in bonuses that top officials of Martin Marietta Corp. and Lockheed Corp. granted themselves for staging the largest merger in Pentagon history, Defense Department officials said yesterday.
The government-subsidized merger of Lockheed and Martin Marietta was completed Wednesday.
Some stockholders argued the bonuses, including $8.2 million for Martin Marietta Chairman Norman R. Augustine, were excessive and unwarranted.
Defense officials supported the merger, arguing that the federal government would reap lower costs over the long term.
Despite the merger's importance to the Pentagon, defense officials made no comment on the windfall for the company executives. Had administration officials opposed the bonus package, industry officials say, Mr. Augustine and Lockheed officials would have scrapped the payouts.
"We couldn't have gone ahead with it [the bonuses] in the face of Pentagon objections," said one senior Lockheed official, who spoke on condition he not be identified.
Defense Secretary William J. Perry and his deputy, John Deutch, were employed as consultants by Bethesda-based Martin Marietta before joining the Pentagon and have close personal relationships with Mr. Augustine. But Pentagon spokesman Ken Bacon said he was unaware of any roles played by Mr. Perry and Mr. Deutch in the decision to approve the bonus plan and pay $31 million toward the total.
In response to questions by Newsday, Mr. Bacon said Lockheed and Martin Marietta submitted the bonus package plan to Defense Department officials before details were disclosed to the public. The Pentagon analysis showed the bonus package to be $10 million more than claimed by corporate officials last December.
Mr. Bacon said defense officials agreed to pay $31 million of the bonus package in two categories. According to Mr. Bacon, $19 million stemmed from executive benefit claims already made under older contracts and will be paid out in lump sums. In addition, $12 million relates to cost claims not yet submitted under future contracts, Mr. Bacon said, and will be paid by Pentagon officials over a three-year period.
According to Mr. Bacon, corporate officials indicated that $62 million, or two-thirds of the bonus payments, would come from Lockheed Martin profits. The $31 million payment by the Pentagon toward the bonus package comes on top of an estimated $1 billion taxpayer subsidy to Lockheed Martin from the Clinton administration.
As a result of a major policy change last year, the Pentagon has agreed to use taxpayer dollars to subsidize defense industry mergers as part of President Clinton's plan to preserve companies that build U.S. weapons. Under that policy, Lockheed Martin will be entitled to an estimated $1 billion Pentagon payment to cover such costs as plant shutdowns, employee relocation and other merger expenses.
Sen. Charles Grassley, a leading critic of Pentagon payments to defense-industry executives, said the undisclosed bonus funding needs a closer look.
"Last year's defense appropriations act placed strict limits on the use of taxpayer money for executive compensation," the Iowa Republican said. "And we need to know whether direct DOD payments to the new Lockheed Martin Corp. are appropriate and consistent with the law."
Mr. Grassley, chairman of the Senate Judiciary subcommittee on administrative oversight, said he would push for a review of the merger by the Pentagon inspector general and the General Accounting Office.
Mr. Bacon said the decision on the bonus package was made by Josh Gotbaum, assistant defense secretary for economic security. Other defense officials said both Mr. Perry and Mr. Deutch signed off on the bonus package as part of the Pentagon approval of the merger that was submitted to the Federal Trade Commission Dec. 29.
Mr. Perry and Mr. Deutch, President Clinton's nominee to be CIA director, last year secretly reversed the Pentagon's 40-year ban on reimbursing expenses related to defense company acquisitions and mergers. When their decision became public, it provoked criticism by the House Armed Services Committee. Congress later passed legislation to monitor the merger payments.
Before approving the windfall for Mr. Augustine's company, Mr. Perry and Mr. Deutch obtained waivers of an ethics regulation that prohibits Pentagon officials from dealing with former employers for one year. Both Mr. Perry and Mr. Deutch were on Mr. Augustine's payroll before joining the Pentagon and served with him on the Defense Science Board, a Pentagon advisory panel.