CDC Best Practices Guidance - Executive Compensation

As outlined in 13 CFR §120.823(d)(3), the Board of Directors (Board) of a Certified Development Company (CDC) is responsible for “[s]etting the salary for the CDC manager and reviewing all salaries.” The Board has a duty to carry out this responsibility with “…no actual or appearance of a conflict of interest.” Additionally, under 13 CFR § 120.823(d)(5), the Board must ensure that the CDC’s expenses (which includes all compensation expenses) are “reasonable and customary.” Further, under 13 CFR § 120.823(d)(9), the Board must ensure that the CDC “establishes and maintains adequate reserves for operations,” and under 13 CFR § 120.823(d)(10), the Board must ensure that the CDC “invests in economic development in each of the States in its Area of Operations.”

13 CFR § 120.830(a)(2) requires a CDC’s Annual Report to contain a report on compensation that includes detailed information on total compensation (including salary, bonuses, and expenses) paid within the CDC’s most recent tax year for current and former officers and directors. In addition, the report must include details on compensation of current and former employees and independent contractors with total compensation of more than $100,000 during the CDC’s most recent tax year. SBA Form 1253 (CDC Annual Report Guide) requires the CDC’s Report on Compensation to include the following:

1. a copy of the CDC’s executive compensation policy;
2. documentation of the Board’s basis for determining executive compensation;
3. evidence of the Board’s review and approval of the current executive compensation package;
4. detailed information on all compensation (including salary, bonuses and expenses) paid within the CDC’s most recent tax year for current and former officers, directors, and key employees (even in cases where compensation is less than $100,000), plus details of deferred compensation packages where applicable; and
5. detailed information on all compensation (including salary, bonuses and expenses) paid within the CDC’s most recent tax year for current and former employees and independent contractors with total compensation of $100,000 or more during that period, plus details of deferred compensation packages where applicable. A copy of the CDC’s federal tax return for the most recent year, including all schedules, must also be submitted with the CDC’s Annual Report. Submission of the IRS Form 990 does not serve as a substitute for the required Report on Compensation.