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Spiro projected Gelder’s future salary based on the salary
of the top 10 percent of underwriters, even though Gelder spent
only 10 or 15 percent of his time underwriting. Spiro’s
methodology ignores the fact that Gelder did much more than
underwriting.
Shriner used insurance industry data for officers and
managers to estimate Gelder’s future compensation. That data
shows that officers of companies in the insurance industry with
assets of $1 million received compensation of 14.6 percent of
gross revenues. Shriner estimated that future compensation of
WSA officers would be 14.7 percent of WSA’s gross revenues. We
believe that Shriner reasonably estimated Gelder’s future
compensation.
Respondent contends that Shriner should have assumed that
WSA would make payouts to investors at the middle of the year
(midyear convention) rather than at the end of the year (yearend
convention). Respondent contends that Shriner’s approach is
incorrect because he “artificially treats net cashflows as not
received until the end of each year.” We disagree. There is
support for use of the yearend convention on the grounds that
payment at the end of the year is better than payment in the
middle of the year because payment at the end of the year enables
the managers to see how the year has turned out. Pratt, Cost of
Capital, Estimations and Applications 30-31 (1998). We do not
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