In this executive order, the “Secretary of War” is the President’s Secretary of Defense, whose department was rebranded as the U.S. Department of War in 2025. The current officeholder is Pete Hegseth, confirmed by the Senate as Secretary of Defense in January 2025 and now styled “Secretary of War,” but the underlying statutory cabinet position remains the Secretary of Defense under 10 U.S.C. §113.
The order relies mainly on existing legal authorities rather than creating new ones. First, under 10 U.S.C. §113, the Secretary of Defense/War has “authority, direction, and control over the Department of Defense,” which includes managing contracts, assessing contractor performance, and deciding what terms to put in future contracts. Second, the order expressly authorizes use of enforcement tools under the Defense Production Act (50 U.S.C. 4501 et seq.), which allows priority-rated orders, allocation of materials, voluntary agreements, and related enforcement. Third, it directs use of existing Federal Acquisition Regulation (FAR) and Defense FAR Supplement (DFARS) contract enforcement mechanisms (for example, performance evaluations under FAR 42.15 and default or other remedies under the contract) to compel remediation plans and, if needed, impose consequences on underperforming contractors.
The Defense Production Act (DPA), codified at 50 U.S.C. 4501 et seq., is a Cold War–era law that lets the federal government direct parts of the civilian economy to meet “national defense” needs, broadly defined. Key powers include: (1) priority-rated contracts and orders that companies must accept and fill ahead of non‑rated work (Title I); (2) authority to allocate or control the distribution of critical materials, services, and facilities; and (3) financial tools like loans, loan guarantees, purchase commitments, and subsidies to expand or protect industrial capacity (Title III), plus authority for government–industry “voluntary agreements” and other coordination (Title VII). These powers are usually delegated by the President to Cabinet officials (such as the Secretary of Defense/War) and have been used both in wartime and for emergencies (e.g., pandemics, energy and critical-supply shortages).
SEC Rule 10b-18 is the main rule governing how companies may repurchase their own stock in the open market. It provides a non‑exclusive “safe harbor” from liability for stock‑price manipulation under the Securities Exchange Act (e.g., Section 9(a)(2) and Rule 10b‑5) if an issuer’s buybacks on a given day follow four conditions: (1) manner – use only one broker/dealer; (2) timing – avoid opening trades and most trades near the close; (3) price – pay no more than the highest independent bid or last independent transaction price; and (4) volume – limit daily repurchases to no more than 25% of the stock’s average daily trading volume, with certain exceptions. The safe harbor is optional (companies can buy back outside it, at higher legal risk) and does not protect against all forms of liability, but it substantially reduces manipulation risk for routine, programmatic buybacks.
The order itself does not define detailed numerical metrics for “underperforming,” “insufficient prioritization,” or “insufficient production speed”; it leaves those judgments “as determined by the Secretary.” In practice, the Secretary will almost certainly rely on existing contract terms and performance systems—such as whether the contractor is meeting schedule, quantity, and quality requirements and how it is rated in official Contractor Performance Assessment Reporting System (CPARS) evaluations under FAR 42.15—to decide if a contractor is underperforming. Because no implementing guidance with precise thresholds has been published yet, the exact metrics and standards remain to be determined by the Department of War through policy and contract clauses.
Barring defense contractors from paying dividends or doing stock buybacks during periods of underperformance or until they meet the order’s “superior product, on time and on budget” standard would directly restrict how they return cash to shareholders. In the near term, markets have reacted negatively: major defense stocks such as Lockheed Martin and Northrop Grumman fell several percent after the announcement, reflecting concerns about lost buyback support, reduced dividend income, and greater political risk. Over time, the rule could push firms to retain more earnings for investment in capacity and performance improvements, which might strengthen operations and revenue but make the stocks less attractive to income‑focused or buyback‑sensitive investors and could increase volatility in response to performance or policy disputes.
Neither the President nor the Secretary of War can simply pass a law capping what private‑sector executives are paid in general, but they can attach compensation conditions to federal defense contracts and limit how much executive pay is recoverable as contract costs. This order directs that future defense contracts must (1) bar executive incentive pay tied to short‑term financial metrics like EPS from buybacks and instead link it to delivery and production metrics, and (2) give the Secretary authority, “consistent with applicable law,” to cap executive base salaries at current levels (with inflation adjustments) for underperforming contractors—effectively as a contractual condition companies accept if they want those contracts. Separately, procurement law already caps how much executive compensation is allowable and reimbursable under covered contracts via the benchmark compensation amount set under 41 U.S.C. §1127 and implemented in FAR 31.205‑6, so companies remain free to pay more, but cannot charge excess amounts to the government. Any broader or mandatory economy‑wide salary caps would require new legislation and would likely conflict with existing corporate and labor law.
The text of the order applies to “defense contractors for critical weapons, supplies, and equipment” without limiting that term to U.S.-owned firms, so from the U.S. government’s side it covers any contractor (including foreign‑owned or foreign subsidiaries) that holds the affected U.S. defense contracts. In practice, foreign‑owned companies often perform U.S. defense work through U.S. subsidiaries that are subject to security and foreign‑ownership rules (e.g., Foreign Ownership, Control, or Influence mitigation and DFARS Part 225 on foreign acquisition); when such entities sign contracts containing the new clauses, they would be bound by the same dividend/buyback and executive‑pay restrictions as U.S. primes. The order does not itself change which foreign firms may receive contracts—that remains governed by existing statutes, DFARS 225, and security regulations—but it would attach these conditions to covered contracts regardless of ownership.