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Hakala's formula consists of a base salary of $90,000
increasing at a nominal rate of 2 percent for each year of the
term, plus a variable component equal to 20 percent of operating
income before officers' compensation.
As for the base salary figure, Hakala used data on
contractor executive compensation compiled by Personnel
Administration Services (PAS survey). Hakala felt the PAS survey
was the most accurate under the circumstances of this case.
Hakala used the median, 50th percentile, salary of $144,000, and
broke this down into a median base salary of $90,000 plus a
$54,000 bonus. Hakala explained that $90,000 is the median base
salary for someone working in a firm with between $5 million and
$20 million in sales on the west coast. For companies in the
75th percentile, compensation climbed to $200,000. The top
officer also received additional benefits with a cash value of up
to $50,000.
As for the variable component, the 2-percent figure accounts
for the slow growth in the real estate market in addition to an
inflation factor. Hakala calculated the 20-percent bonus figure
using financial projections for 1993 and 1994 and an intended
return on equity. Hakala concluded that 20 percent was "the most
bonus" the executive could be paid and still allow some kind of
reasonable return expectation to the shareholder. Hakala opined
that Ginger's compensation for the fiscal years ended June 30,
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