Big Pay Hikes Found at Ailing Firm : Defense: Management of nonprofit Aerospace Corp. defends double-digit raises at a time when employees were being laid off.

At a time when Aerospace Corp. in El Segundo is severing employees and facing critics who want to slash its funding, Pentagon auditors have found that the company’s top executives were given big pay raises.

A recent confidential audit, a copy of which was obtained by The Times, showed that the company gave pay raises averaging 22% for managers and 29% for the top dozen executives in a recent two-year period. The firm has laid off 860 scientists, engineers and support staff members since 1990.

The 44-page audit also asserted that senior executives billed U.S. taxpayers for home security systems, personal automobile use, child care, care for the elderly and for a generous retirement program that exceeded industry averages by a wide margin.

The raises and perquisites have sparked a controversy here that could not have come at a more awkward time for the company. Aerospace Corp. is facing tough questions about whether the Air Force can afford its services as federal budgets shrink.

Aerospace Corp. asserts that the raises were necessary to bring management salaries in line with those of its competitors. The company also has persuaded Pentagon auditors to soften some of their original findings.

Nonetheless, the firm is finding itself under an increasingly bright spotlight, as are other similar defense research organizations.

Aerospace Corp. is one of 11 private nonprofit Pentagon contractors as federally funded research and development corporations, or FFRDCs. Others include Rand Corp., Mitre, the Institute for Defense Analysis and Lincoln Laboratories.

For the first time since their creation in the early days of the Cold War, these organizations are having to justify their existence and defend what critics often regard as high costs.

Aerospace gets 97% of its funding, for which it does not have to compete, from the Air Force. Its work consists mainly of providing the engineering for all military satellite and launch systems, ranging from spy satellites to the Titan IV rocket.

Aerospace Corp. is widely regarded as one of the government’s top brain trusts--a quarter of its technical staff have Ph.Ds. It currently has 3,571 employees, and it posted 1993 revenue of $420.5 million.

Pentagon spending on such organizations has increased from $1 billion for 1985 to about $1.4 billion for 1993, even as defense spending overall was dropping sharply, according to the Professional Services Council, a Washington trade association. For the current fiscal year, however, funding was cut to $1.3 billion.

The trade group, which includes engineering contractors such as BDM International of McLean, Va., would like the Pentagon to open up competition for much of the work that the federally funded organizations are automatically granted.

The group alleges that the centers’ costs are 50% higher than what they would charge. Such assertions and the growth of the centers’ budgets at a time of cutbacks have prompted a tough look by Congress.

Sen. Jeff Bingaman (D-N.M.), a member of the Senate Armed Services Committee, has led an effort to clamp tight new spending controls on these organizations. The House Armed Services Committee has also sought to limit their funding.

And Rep. John Conyers, (D-Mich.), chairman of the House Government Operations Committee, has asked the General Accounting Office to investigate senior executive salaries at Aerospace, and also its recent hiring of retired Air Force officers.

At a recent Conyers committee hearing, it was disclosed that Aerospace charges the government an average of $181,000 a year for each of its scientists and engineers, far more than other contractors do for theirs.

Aerospace, for its part, has tried to increase its political clout in Washington to fight what it sees as politically motivated efforts by Congress and private industry rivals to cut its funding.

Aerospace Chairman Pete Aldridge, a former Air Force secretary, said in a recent interview that congressional budget actions have forced the firm to cut employment 17% since 1990--more than other federally funded research centers have had to do.

The company has hired a savvy representative in Washington, Ronald Sable, whose former job was to keep the C-17 cargo jet alive for McDonnell Douglas. Aerospace has also enlarged its Washington staff and moved to large offices in Virginia overlooking the Potomac River.

Aldridge dismissed criticism of some who say Aerospace has outlived its usefulness, saying the firm remains crucial to national defense. He also said the average defense engineer in Los Angeles costs the government $200,000, a figure far higher than the average for Aerospace.

“If you got rid of Aerospace Corp., you would have to re-create the same technology base as we have,” he said. “Contractors say they have that ability, but they could never have the same . . . talent base across all of the technologies. We have a vision and a strategic plan to be the world’s expert on space. We are a long way toward that.”

Right now, however, Pentagon auditors are more interested in Aldridge’s pay. According to audit documents obtained by The Times, he received $265,000 in 1992, up from $230,000 in 1991 and more than the $203,000 his predecessor got in 1990.

“He makes more than the President of the United States,” said Rep. Jane Harmon (D-Marina del Rey), a member of the House Armed Services Committee. “You have to ask, ‘What is the appropriateness of something like this?’ Those are big salaries at a time of severe cutbacks.”

Harmon has previously championed Aerospace’s cause, fending off a recent effort by Bingaman to impose budget ceilings. After she won that battle, however, she was outraged to learn that Aerospace was planning to move jobs out of her district to Washington.

The Pentagon audit originally branded as “unreasonable” about $4 million in pay and benefits paid to executives and technical supervisors in 1993, though the disputed amount was cut in half recently after Aerospace executives and Air Force officials hotly protested the audit.

The Pentagon audit asserts that Aerospace executive benefits were twice the maximum the Pentagon considers reasonable. It also faults the company for not having official job descriptions for five senior executives. The job descriptions are used to determine whether salaries are appropriate.

In a written response to The Times, Aerospace defended the executive salary increases, saying the salaries had been so low that “they were jeopardizing the company’s ability to attract and retain individuals with the talent, skill and experience necessary to meet our mission responsibilities.”

Aerospace also maintains that the raises were 10%, not 22%, a claim Pentagon auditors rejected. Aerospace also said its child-care and elderly-care programs are available to other employees. It acknowledged that a few executives received home security systems but said those were approved by Air Force contract officials.

Defense Contract Audit Agency spokesman Phil Rogers acknowledged that auditors cut the disputed $4 million in half because Aerospace provided new industry surveys showing its compensation was not that far out of line.

But an auditor familiar with Aerospace’s audit said the reduction was made only after senior Aerospace executives, aided by the Air Force, raised a stink. The audit agency then assigned two senior managers at its regional office to revise the audit and quell the uproar, the auditor said.

Rogers said such revisions are normal and that the agency was not coerced into toning down its report.