Labelgraphics, Inc. - Page 29

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               Petitioner, nevertheless, asserts that an independent                  
          investor would still be satisfied with the corporation's 36.05              
          percent cumulative average annual return on equity through the              
          1990 fiscal year.  We disagree.                                             
               In our opinion, the cumulative average annual return on                
          equity petitioner experienced over the period from July 1, 1980             
          through June 30, 1990, would not be as significant to an                    
          independent investor as the corporation's return on equity for              
          the current 1990 fiscal year in issue.  Indeed, the record                  
          reflects that petitioner's directors' usual practice had been to            
          tie Mr. Martin's annual bonus to the corporation's financial                
          performance during the recent fiscal year.  Also, the higher                
          36.05 percent cumulative average annual return is somewhat skewed           
          by the much higher annual returns on equity petitioner enjoyed              
          during its earlier years of operation, when its equity was much             
          lower.                                                                      
               E. Internal Consistency                                                
               The fifth factor focuses on whether the compensation was               
          paid pursuant to a structured, formal, and consistently applied             
          program.  Bonuses not paid pursuant to such plans are suspect.              
          Similarly, bonuses paid to controlling shareholders are also                
          suspect "if, when compared to salaries paid non-owner management,           
          they indicate that the level of compensation is a function of               
          ownership, not corporate management responsibility."  Elliotts,             





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