President Donald Trump has intensified pressure on major defense contractors, targeting their reliance on stock buybacks and executive compensation at the expense of production speed.
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Trump made an announcement at Mar-a-Lago on Monday, signaling a major shift in how the Pentagon will manage its nearly $1 trillion annual budget.
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Prioritizing Production Over Payouts
The administration’s main grievance is a perceived mismatch between corporate profits and significant delivery delays, which reduce national security readiness.
Trump criticized the largest defense contractors for paying executives upwards of $50 million annually and authorizing billions in share repurchases while key programs face chronic delivery delays.
“We’ll be discussing the pay to executives, where they’re making $45 and $50 million a year and not being able to build quickly,” Trump said on Monday.
“They’re going to make that kind of money, they have to build quickly.”
Proposed Executive Order
Punchbowl News was the first to report last week that the White House is drafting an executive order that would penalize defense contractors that fail to meet performance benchmarks.
Key components of the proposal include:
- Limiting Buybacks and Dividends: Restrictions on capital returns for companies whose projects are significantly behind schedule or over budget.
- Performance-Linked Pay: Mandating that executive bonuses be tied directly to the timely delivery of weapons systems.
- Forced Reinvestment: Encouraging firms to utilize internal capital for research and development (R&D) and facility upgrades before receiving federal subsidies.
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A New Procurement Philosophy
Supported by Secretary of Defense Pete Hegseth, the “Peace Through Strength” initiative seeks to eliminate the bureaucracy of the traditional procurement process.
The Trump administration remains firm that taxpayer dollars should be converted into hardware on the front lines rather than dividends on Wall Street. However, industry analysts warn that such interventions could drive away private investment.
“This seems to be an overreach, and, in our view, the contractors don’t need to be regulated given contract structure and clearer demand signals self-regulate investments,” analysts from Jefferies wrote, per the Wall Street Journal.
Stocks React
As reports came out over the past week, major defense stocks navigated volatility with a sharp dip last week, followed by a recovery.
RTX Corp. (NYSE:RTX) and Lockheed Martin Corp. (NYSE:LMT) saw their shares slide last week as the market processed the administration’s criticisms, but both stocks had recovered by Tuesday, with RTX climbing back to the $185 range.
Northrop Grumman Corp. (NYSE:NOC) followed a similar trajectory, rebounding from a low of approximately $560 to trade near $580 by Tuesday.
Meanwhile, General Dynamics Corp. (NYSE:GD) remained the most stable of the group, bolstered by the broader context of the president’s proposed 13.4% increase in the fiscal 2026 defense budget.
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