On Wednesday, Jan. 7th, 2026, President Donald Trump stated in a Truth Social post that he “will not permit defense companies to issue dividends or stock buybacks until those defense companies ramp up their production of military equipment and address other issues within the industry.” Specifically, President Trump stated that no defense company executive “should be allowed to make in excess of $5 million” until the company builds “new and modern production plants.”
The President formalized these plans in his Executive Order (EO) titled “Prioritizing the Warfighter in Defense Contracting,” which includes the following significant changes:
- Ban on Profit Prioritization by Defense Companies. Defense companies are immediately banned from stock buybacks and dividend payouts until they deliver higher quality goods “on time and on budget.”
- Performance Accountability Standards. Defense companies that fail to meet production and prioritization standards as outlined in the EO will be identified by the Secretary of War and given 15 days to submit a “remediation plan approved by its board of directors” to correct the identified issues. A remediation plan deemed “insufficient” by the Secretary will be subject to enforcement actions as specified by Federal Acquisition Regulation (FAR) and the Defense Federal Acquisition Regulation Supplement (DFARS).
- Limitations on Future Defense Contracts. The Secretary will institute further requirements for underperforming defense companies “that executive base salaries of the contractor be capped at current levels, with increases allowed for inflation, consistent with applicable law, for a time period sufficient to allow the Secretary to scrutinize the incentive portion of executive compensation to ensure it is directly, fairly and tightly tied to the above metrics.” The EO also states that the Chairman of the Securities and Exchange Commission shall consider the adoption of amended regulations “governing stock buybacks under Rule 10b-18 that would prohibit use of the relevant safe harbor for defense contractors.”
How this Impacts Current and Future Defense Contractors
- A New Level of Scrutiny in Current and Future Defense Contracts. Following this EO, all current and future defense contracts will be subject to review by the Secretary to determine which companies are “engaged in underperformance, non-compliance with the contractor’s contract, insufficient prioritization of the contract, insufficient investment or insufficient production speed.” The EO does not provide metrics for what constitutes a company’s insufficient performance of a contract outside the subjective view of the Secretary. While the overall review process is currently uncertain, it is certain that the Secretary has 30 days from the EO to identify underperforming contracts and the identified contractors will have 15 days to submit a remediation plan following notice of underperformance.
- Effect on Subcontractors. President Trump’s actions related to this EO are targeted towards “major defense contractors” some of whom were explicitly named by him on social media. However, the terms “major defense contractors” and “large defense contractors” are not defined in the EO. Moreover, the EO does not explicitly mention subcontractors and what procedural mechanisms are in place for a subcontractor if a primary major or large defense contractor falls under the Secretary’s review or fails to provide a satisfactory remediation plan.
