- 26 -
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,
Page: Previous 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 NextLast modified: May 25, 2011