- -21
Mr. Galanti's reasoning is flawed.10 The "reasonable" salary
used for each title is based upon a full-time position. It is
most unlikely that Mr. Haviv could have worked 160 hours per
week.
In addition, in considering whether a reasonable investor
would have approved of compensation to Mr. Haviv of over $600,000
per year, Mr. Galanti focused on Mr. and Mrs. Haviv's return on
their $500 investment since 1983. That calculation resulted in
an annualized growth rate of 72 percent. We recognize the
caution with which such a ratio must be examined.11 Return on
equity is a much more accurate indicator of company performance.
(See our discussion, infra.) As opposed to the 72 percent
figure, petitioner's return on equity year by year from 1988 to
1992 was 35 percent, 21 percent, 16 percent, 36 percent, and -51
percent respectively. Since a board makes its bonus decisions
from year to year, return on equity may also be examined from
year to year. Thus, a strong return in 1 year does not guarantee
board approval of bonuses in the next year, especially if there
are financial reverses the second year.
10 Mr. Galanti believes that it would have been reasonable
to pay Mr. Haviv $1,377,632 in 1991 for a company that earned
$84,911 and $1,424,765 in 1992 for a company that lost $132,278.
11 For example, if Mr. and Mrs. Haviv had invested $1,000
in 1983 their annualized return on investment would have been 36
percent whereas a smaller $250 investment would have given them
an annualized return of 144 percent.
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