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5. Prevailing Rates of Compensation for Comparable
Positions in Comparable Companies
In deciding whether compensation is reasonable, we compare
it to compensation paid to persons holding comparable positions
in comparable companies. See Rutter v. Commissioner, supra at
1271; Mayson Manufacturing Co. v. Commissioner, supra at 119.
Petitioner and respondent rely on their experts' reports and
testimony with respect to this factor. We are not persuaded by
any of the experts.
Dr. Lacey's report does not provide any data or opinion as
to the amount of compensation that would be reasonable for
petitioner to pay to Dennis or Curtis. Respondent uses the
compensation amounts Mr. Katz concluded were reasonable. Those
amounts, however, do not take into account the valuable stock
options received by executives of the publicly traded companies.
We think that those amounts are less than the amounts that Dennis
or Curtis would expect to be paid or that an independent investor
would agree to pay for their services.
By contrast, the amounts calculated by Mr. Reilly for Dennis
exceed the amounts paid by other companies for four full-time
executives, and they are excessive.
On the basis of their value to petitioner's business, we
find that an independent investor would agree to pay Dennis, as
CEO, the highest amount of reasonable compensation for a CEO and
Curtis, as COO, the highest amount of reasonable compensation for
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