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amount of compensation paid to the particular employee in
previous years. The Schneider case also quotes the provision of
section 1.162-7(b)(2), Income Tax Regs., that while a fixed
method of compensation is not decisive as to its deductibility,
generally speaking, if contingent compensation is paid pursuant
to a free bargain between the employer and the individual made
before the services are rendered, not influenced by any
consideration on the part of the employer other than that of
securing on fair and advantageous terms the services of the
individual, it should be allowed as a deduction even though in
the actual working out of the contract it may prove to be greater
than the amount which would ordinarily be paid.
Petitioner in this case argues that Mr. Schoenecker had
superior qualifications which would justify a high level of
compensation. Petitioner contends that Mr. Schoenecker's
education, which included a college degree and some study of law,
his experience, motivation, leadership, managerial skills,
business judgment, specialized training, personal contacts, and
personal selling attributes, justify a high salary. We have
concluded that Mr. Schoenecker was a very competent CEO and have
given weight to this fact in our conclusion as to reasonable
compensation for his services. However, limits to reasonable
compensation exist, even for very valuable employees. Owensby &
Kritikos, Inc. v. Commissioner, 819 F.2d 1315, 1325 (5th Cir.
1987), affg. T.C. Memo. 1985-267.
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