in effect
Executive Order 14372, signed January 7, 2026, directs the federal government to hold major defense contractors accountable for on-time, on-budget delivery by restricting their ability to pay dividends or buy back stock while underperforming on government contracts. It establishes a review and enforcement process administered by the Secretary of War (the order’s term for the Defense Secretary).
Effective immediately upon signing, defense contractors are prohibited from paying dividends or conducting stock buybacks if they are underperforming on their contracts. Within 30 days, the Secretary of War must identify underperforming contractors and give them written notice; those contractors then have 15 days to submit a board-approved remediation plan. If no resolution is reached, the Secretary may invoke enforcement tools including the Defense Production Act, Federal Acquisition Regulations, and contract enforcement mechanisms. Within 60 days, all new and renewed defense contracts must include clauses banning buybacks and dividends during periods of underperformance, tying executive incentive pay to delivery and production metrics rather than short-term financial figures, and allowing the Secretary to cap executive base salaries during underperformance reviews. The SEC Chairman is also directed to consider rulemaking that would strip underperforming defense contractors of a standard safe-harbor protection for stock buybacks under Rule 10b-18.
Large defense contractors that hold contracts for critical weapons, supplies, and equipment are the primary targets, particularly those that have paid dividends or repurchased stock while missing delivery or production benchmarks. Executives at those companies face potential changes to how their compensation is structured and capped. Contractors competing for international Foreign Military Sales or Direct Commercial Sales may also lose U.S. government advocacy support if they are flagged as underperforming.