Dexsil Corporation - Page 6




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               adequately balance the company's financial fitness and                 
               role in the market, and the employee's responsibility                  
               for that role.  They also require a suitable comparison                
               of the employee's compensation to other employees in                   
               the same company, and similar employees in analogous                   
               companies--sturdy benchmarks for determining the                       
               reasonableness of an employee's reward.  And, these                    
               considerations properly patrol a company's ability to                  
               substitute salary for dividends by recognizing, in the                 
               first place, a shareholder-officer's temptation to do                  
               so, and, then, by focusing on the disinterested                        
               investor's perspective.                                                
          Petitioner's position is that an investor in a closely held                 
          company such as petitioner, dominated by family members, should             
          be satisfied with a return equal to or even less than the return            
          paid by a company listed on a major exchange.  If that were the             
          law, any amount of compensation would be regarded as reasonable             
          as long as a minimal average return, computed by adding                     
          appreciation as well as actual payments to shareholders, was                
          reflected on the company's balance sheets.  We believe that                 
          petitioner's premise is erroneous.  We conclude that a                      
          hypothetical independent investor would not accept Lynn's                   
          compensation as reasonable where consideration is given to all              
          relevant factors.                                                           
          "Contingent Compensation Formula"                                           
               Petitioner contends that the $302,340 and $410,000 bonuses             
          paid to Lynn during the respective years in issue were pursuant             
          to a formula adopted in 1982 by which Lynn's annual bonus would             
          be equal to approximately 11 percent of sales.  That argument is            






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