Wagner Construction, Inc. - Page 26




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          financial statements or tax returns.  On the basis of the income            
          reported on petitioner's Forms 1120, Mr. Reilly calculated that             
          petitioner had a net income percentage (or after-tax profit                 
          margin) of 3.8 percent for 1995 and 1.1 percent for 1996.                   
               Mr. Reilly did not compare compensation paid to Dennis and             
          Curtis to that paid to petitioner's other employees because no              
          other employee held an administrative or executive position.  Mr.           
          Reilly observed that petitioner maintained a profit-sharing plan            
          that included other employees, and the union employees were paid            
          top scale wages for the State of Minnesota rather than the                  
          specific region governed by petitioner's union contracts.                   
               Mr. Reilly performed two separate analyses of petitioner's             
          executive compensation for purposes of determining a range of               
          reasonable compensation.                                                    
               Mr. Reilly first compared the executive compensation of                
          Dennis and Curtis to published executive compensation study                 
          figures for positions in companies that, in his opinion, were of            
          comparable size and in comparable industries.  He used annual               
          compensation surveys from the National Institute of Business                
          Management (the NIBM survey) and Aspen Publishers, Inc. (the                
          Aspen survey).  The NIBM survey covers companies in the                     
          construction, contracting, and extraction industries with annual            
          sales exceeding $5 million.  There is no upper limit on the sales           
          volume of companies included in the survey segment and,                     






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