In a move that sent shockwaves through the defence sector, former US President Donald Trump declared he would not allow major defence contractors to issue dividends or buy back their own shares until they significantly ramp up investments in production and research. The comments, made via a social media post, triggered an immediate sell-off in the stocks of leading American weapons manufacturers.
A Stern Ultimatum to Defence Giants
Trump asserted that executive compensation at these corporations should be capped at $5 million annually until they construct what he termed "NEW and MODERN Production Plants." He criticised the current pace of building and maintaining military equipment, accusing companies of prioritising shareholder returns over crucial capital investment.
"Defense companies are currently issuing massive Dividends to their Shareholders and massive Stock Buybacks, at the expense and detriment of investing in Plants and Equipment," Trump wrote. He emphatically added, "This situation will no longer be allowed or tolerated!"
Market Fallout and Staggering CEO Pay Packages
The financial markets reacted swiftly to his pronouncements. Shares of top US defence contractors dropped, with Northrop Grumman Corp. falling as much as 3% following the statement. Other industry leaders like Lockheed Martin Corp., RTX Corp., and General Dynamics Corp. also saw their stock prices decline. Spokespeople for RTX, Northrop, and Lockheed Martin did not immediately comment on the development.
The proposed $5 million pay cap stands in stark contrast to the current compensation levels of defence CEOs. For instance, in 2024, Northrop CEO Kathy Warden received total compensation of $24 million, which included an annual salary of $1.79 million. Similarly, Lockheed Martin CEO Jim Taiclet's total pay was $23.75 million, with a base salary of $1.75 million.
A Recurring Theme with Enforcement Questions
While Trump did not specify the mechanism for enforcing these demands, sources familiar with his thinking indicated earlier that he was considering an executive order on the matter. This Wednesday's post reiterated points he first made on December 22, when he announced plans to meet with defence executives to push them towards spending more on development instead of buybacks, dividends, and high executive pay.
This criticism is not new for the Trump administration. In November, Defense Secretary Pete Hegseth had lambasted the slow and costly defence procurement process, demanding that major companies invest their own capital to improve the speed and volume of deliveries. Officials from Lockheed and Northrop were present in the audience during those remarks.
Furthermore, Trump and Hegseth are merely the latest officials to voice such concerns. Even under the Biden administration, Navy Secretary Carlos Del Toro in February 2024 told a defence industry gathering that many firms were posting record profits, as seen in their quarterly reports.
