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1984 through 1993, petitioner paid Herold salary and bonuses as
follows:
Year Salary Bonus Total
1984 $262,000 $120,000 $382,000
1985 120,000 - 0 - 120,000
1986 120,000 - 0 - 120,000
1987 120,000 - 0 - 120,000
1988 170,000 400,000 570,000
1989 237,000 400,000 637,000
1990 397,500 400,000 797,000
1991 592,500 100,000 692,500
1992 600,000 600,000 1,200,000
1993 600,000 600,000 1,200,000
Petitioner also provided Herold with a $15,000 life
insurance policy, health insurance, and vacation and sick leave
during the subject years. Neither Herold nor any other employee
of petitioner received contributions to a qualified pension or
profit-sharing plan during the subject years.
Herold is the sole member of petitioner's board of
directors, and, in that capacity, he devised formulas under which
his bonus was paid. His practice each year was to prepare a
"bottom-up" analysis of projected sales, revenues, and profits
and then to determine sales goals, taking extraordinary events
and economic conditions into account. His aim was to determine
goals that were attainable with hard work. He then built a
"stretch" factor into his goals in order to challenge himself.
The resulting bonus plan was always keyed to specific sales
increase percentages. Petitioner adopted each year's plan
through board minutes drafted during the first week of April.
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