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Burden of Proof
Petitioner on remand relies almost exclusively on the
alleged compensation formula in arguing that, on reconsideration,
Dexsil has satisfied its burden of proving that Lynn's
compensation was reasonable. For the reasons set forth above, we
do not believe that the formula was established as alleged by
petitioner in 1982 or was consistently applied. We do not
believe that the hypothetical investor would have looked solely
at rate of return and ignored the availability of other
executives at less compensation than that paid Lynn; we do not
believe that Lynn was the sole reason for Dexsil's success to the
extent that other officer-shareholders were in the cases relied
on by petitioner; and we do not believe that the evidence
supports a determination that reasonable compensation to Lynn in
petitioner's fiscal years ended 1989 and 1990 exceeded $300,000
and $320,000, respectively.
As we indicated in our prior memorandum opinion, the data
compiled by respondent's expert showed that Lynn's compensation
was more than four times the median CEO compensation for seven
comparable companies during the years in issue. There was no
evidence that Lynn's compensation for the years in issue was
intended to compensate him for any past undercompensation.
Petitioner's return on equity was declining during the years in
issue, and the dividends paid were negligible in comparison to
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