Office of Small & Disadvantaged Business Utilization
Highest Compensation Brief
Issue: The Veteran or service-disabled Veteran owner must be the highest compensated employee of the applicant, or provide an explanation as to how taking lower compensation is beneficial to the applicant.
38 CFR § 74.4
- (g)(3) No non-Veteran may receive “compensation from the applicant or participant in any form as directors, officers or employees, including dividends, that exceeds the compensation to be received by the highest officer (usually chief executive officer or president). The highest ranking officer may elect to take a lower salary than a non-Veteran only upon demonstrating that it helps the applicant or participant.”
What This Means
- While receiving a lower salary than non-Veteran owners is not necessarily a bar to establishing control of the applicant, the Center for Verification and Evaluation (CVE) will find that the requirement of 38 CFR 74.4(g)(3) has been satisfied where the applicant demonstrates that the Veteran/Service-Disabled Veteran owner receives a higher salary than non-Veteran owners. If the Veteran/Service-Disabled Veteran does not, CVE will find that this requirement is satisfied if the applicant has provided a written statement explaining that the Veteran/Service-Disabled Veteran has elected to take a lower salary and why doing so benefits the Veteran-owned company. Also, the requirement may be satisfied where the applicant’s documentation shows that the Veteran/Service-Disabled Veteran has a salary equal to that of non-Veteran owners.
- If the Veteran/Service-Disabled Veteran provides an explanation as to why he or she elected to take a lower salary, it is important to show how the applicant (associated Veteran-owned company) benefits, rather than how the Veteran/Service-Disabled Veteran benefits personally. Explanations indicating personal benefits are insufficient to satisfy the requirement.
- Examples of adequate explanations can be: (1) that the Veteran/service-disabled Veteran will be able to retain highly skilled employees by electing to compensate those employees, rather than taking a salary for him or herself; (2) the current business and economic situations are such that revenue is not sufficient and/or operational costs are more critical; and (3) that the applicant is a start-up company and the Veteran/service-disabled Veteran must use resources for start-up costs to ensure the company’s success. This list is not exhaustive, and CVE will assess the totality of the circumstances of every applicant when making a determination of eligibility.
*For Informational Purposes Only*
This information has been provided by CVE for general informational purposes and should not be construed as providing legal advice. You should contact your attorney to obtain advice with respect to any particular issue or problem. In addition, CVE makes no representation as to the accuracy or whether the above information is currently up-to-date. All applicants must read the applicable regulations and determine how best to meet these requirements. The Verification Assistance Briefs do not constitute legal notice or replace the regulations.