In December, reports surfaced that the Trump Administration is planning an executive order to limit dividends, stock buybacks, and executive compensation for Pentagon contractors that are overbudget or behind schedule on key military projects. On this critical issue, President Trump is absolutely right.
For far too long, American taxpayers have been asked to subsidize investments in military research and workforce development—standard costs of doing business that most other industry’s take care of on their own—all based on the premise that the military industry is not capable of covering such costs without taxpayer support due to the highly specialized nature of U.S. military contracts and the limited ability of the industry to take their business elsewhere.
But the same companies seeking handouts from Congress for expenses they supposedly can’t afford (including cost of business expenses such as inflation and interest on loans) have been spending billions of dollars to bolster the profits of their shareholders and CEOs through stock buybacks.
According to an analysis by Stephen Semler, a Senior Fellow at the Center for International Policy, from 2021-2024, the top four Pentagon contractors—Lockheed Martin, RTX, General Dynamics, and Northrup Grumman—spent $89 billion on stock buybacks and shareholder dividends. While portions of these companies’ revenues come from non-governmental sources, accounting for the percentage of revenue coming from U.S. government contracts, roughly $58 billion (nearly two-thirds) of the $89 billion spent on buybacks and dividends was financed with public funding.
To be sure, the purpose of publicly traded corporations is to generate profit for their shareholders. But in the case of the military industry, that purpose is sometimes at odds with national security, which is why the Trump Administration is right to step in. Furthermore, profits should be derived from success, and if a contractor is over budget and behind schedule, that contractor should be penalized rather than rewarded.
Countless major military programs are over budget and behind schedule. In the Navy’s case, for instance, virtually every major shipbuilding program is currently behind schedule and over budget. Problems from workforce retention to worker training and recruitment, to supply chain issues have indeed contributed to these delays and cost overruns. The industry is right that more investments are, in some cases, necessary to fix these problems. However, those companies that are overbudget and behind schedule should not be asking taxpayers to subsidize their failure while prioritizing shareholder profits and executive compensation packages over capital investments that could address these problems.
While details of the specific wording and timing of the planned executive order are scant, remarks by Secretary of War Pete Hegseth this week suggest the administration is still planning to move forward. Speaking at the Newport News Shipyard, Secretary Hegseth said that the Pentagon will “give longer, larger, more predictable contracts to companies that deliver on time and on budget, companies that invest in their people, that invest in more capability and more capacity, not companies that invest in stock buybacks or CEO salaries or more dividends.”
While the industry is predictably vehemently opposed to anything that would limit their ability to maximize profit, including this proposal, their argument that “investors are going to leave the industry” because of it is thoroughly unsubstantiated. With the Pentagon budget on track for a more than 13 percent increase this year, the notion that limiting or even prohibiting stock buybacks and shareholder dividends for companies that are overbudget and behind schedule would have a long-term impact on investment is laughable.
The Trump Administration should stand its ground on behalf of taxpayers and national security and move forward with this plan to limit stock buybacks and shareholder dividends for companies that aren’t delivering for the American people.
