The Office of Federal Procurement Policy has raised the cap on allowable contractor compensation to $763,029, while renewing President Obama’s call for a much lower limit.

The new figure, applying to 2011 pay, is 10% higher than the previous year. The cap is set according to a formula adopted by Congress, based on the pay of top corporate executives.

In a notice in the April 23 Federal Register, OFPP said the cap has tripled since 1995, rising faster than the inflation rate. It said the rapid increase is “forcing our taxpayers to reimburse contractors for levels of executive compensation that cannot be justified for federal contract work.”

Last year President Obama proposed setting the cap at $200,000, approximately equal to the pay of Cabinet members. Congress has declined to do that, but legislation is pending that would reduce the cap to $400,000, the same as the president’s salary.

Contractor groups say higher pay is justified because they have to compete for top talent. They argue that the problem is not that contractor pay is too high, but that government pay is too low at the top levels.

In its Federal Register notice, OFPP said “the President’s Plan would bring parity between the amount that the American public pays for the senior executives of the Federal Government and for the senior executives of those contractors who perform work for the Federal Government on a cost reimbursable or other cost-based arrangement.”

The cap sets the government’s maximum reimbursement for compensation of a contractor’s top five officers and executives. Starting in 2012 it will apply to all contractor employees working for the Defense Department, NASA and the Coast Guard. Other agencies would continue to operate under the current rule.