Executive Pay Upset: Trump Proposes U$5m Defence Sector Remuneration Cap
9 January 2026
US President Donald Trump has lambasted the executive pay of defence firms, calling for a cap of U$5 million until they increase the number of facilities manufacturing military equipment.
This week, Trump wrote on Truth Social that defence contractors are currently giving “massive” stock buybacks and shareholder dividends “at the expense and detriment of investing in plants and equipment”. He added that defence sector executive pay packages are “exorbitant and unjustifiable given how slowly these companies are delivering vital equipment to our military, and our allies”. Trump stated that until defence company executives build “new and modern” production plants that they should not be permitted to earn more than U$5 million “which, as high as it sounds, is a mere fraction of what they are making now”.
Key Client Takeaways:
Defence Executive Pay Under Fire
- Donald Trump has criticised defence contractors for what he describes as excessive executive remuneration alongside heavy stock buybacks and dividends, particularly while production capacity and delivery timelines lag. He has proposed to cap executive pay at U$5 million, tying compensation more directly to infrastructure investment and operational performance.
Restrictions Tied to Performance
- A new executive order would bar underperforming defence firms from paying dividends, undertaking share buybacks, or maintaining high executive pay until they improve contract delivery, invest in production capacity, and prioritise US government needs.
Defence Sector Growth
- Defence stocks and the wider industry have seen strong growth over the past year, supported by rising geopolitical tensions, expanding defence budgets, and increased global demand for military equipment. This recent strength has driven higher shareholder returns and buybacks, by defence sector giants such as Lockheed Martin, Northrop Grumman and Raytheon.
The US President has claimed that he will “not permit dividends or stock buybacks for defence companies until these problems are rectified — likewise, for salaries and executive compensation”. Trump has this week signed an executive order pressing defence firms to cut their spending on stock buybacks and shareholder dividends while boosting investment in infrastructure and weapons production. It is unclear whether and how Trump would cap executive pay at defence companies.
“Many large contractors — while underperforming on existing contracts — pursue newer, more lucrative contracts, stock buy-backs, and excessive dividends to shareholders at the cost of production capacity, innovation, and on-time delivery,” the executive order reads. “Effective immediately, they are not permitted in any way, shape, or form to pay dividends or buy back stock, until such time as they are able to produce a superior product, on time and on budget.”
Within 30 days of the executive order, and on a continuing basis afterwards, Secretary of War Pete Hegseth will identify defence contractors for critical weapons, supplies and equipment that are “underperforming on their contracts, not investing their own capital into necessary production capacity, not sufficiently prioritizing United States Government contracts, or whose production speed is insufficient as determined by the Secretary”. Those companies will be subject to this order.
In December, Trump said that he would meet with defence contractor executives in an attempt to force them to spend more on development instead of buybacks, executive pay and dividends. Trump’s comments this week saw several stocks of major defence companies decline, including Northrop Grumman by more than 5% and Lockheed Martin by 4.9%. Trump’s comments come the same week that he has urged the country’s military spending to be increased by more than 50% to U$1.5 trillion in 2027. In December, Us Congress agreed a budget of U$901 billion for 2025, which has seen an increase in the stocks of defence firms.
Amid rising geopolitical tensions and ongoing conflicts, many of which have been fanned by Trump, defence stocks have soared and military spending has increased across the globe, as covered in Minerva Analytics’ “Beyond the Defence Headlines: Is ESG the Problem?” briefing published last year. This has led to greater payouts to shareholders and stock buybacks. Northrop Grumman reportedly spent U$1.2 billion on stock buybacks in the nine months that ended in September 2025 and paid out U$964 million in shareholder dividends, while Lockheed spent U$2.3 billion on stock buybacks and U$2.3 billion in dividends during the same period.
Raytheon, the world’s largest defence company by market cap, has paid out around U$12 billion in dividends and spent more than U$15 billion on share buybacks since the start of the war in Ukraine according to reports. Trump singled out the company, which produces the Patriot missile system, for criticism accusing the firm of “aggressive spending on their shareholders rather than the needs and demands of the United States military”.
Since the start of his second term as President last January, Trump and his administration have made it more difficult for shareholders to submit proposals and easier for companies to exclude them, as . Many of these shareholder proposals focus on executive pay and curbing excessive remuneration for senior figures at firms, including at defence companies.
CalPERS opposed a pay package for the executives of General Dynamics pay package, supporting a shareholder proposal requesting an advisory vote on the remuneration of the Company’s named executive officers. Meanwhile, the Florida State Board of Administration has voted against Lockheed Martin’s pay package two years running, which in 2025 received almost 7% shareholder support.
Executive pay has been under increasing scrutiny in many places across the globe, with Tesla CEO Elon Musk’s polarising U$1 trillion pay package adding fresh fuel to the fire. US Senator Bernie Sanders branded the pay package as “insanity” amid his attempts to tackle increasing executive remuneration and a widening CEO-to-worker pay ratio though the Tax Excessive CEO Pay Act, as reported by Minerva Analytics.
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Last Updated: 9 January 2026