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officer’s compensation such that an arm’s-length investor could
realize market rates of return on invested capital in * * *
[petitioner]”.20
Hakala calculated the “theoretically appropriate officers’
compensation” by starting with a base salary of $207,000. He
determined this amount by multiplying by 1.5 the median base
salary shown in a survey for 1994 by Panel Publications of Aspen
Publishing, hereinafter sometimes referred to as Panel/Aspen.
Hakala did not explain why he multiplied the 1994 median base
salary by 1.5, or why he used 1994 as a base year when he
provided the data for 1995 and 1996--but not for 1994--in his
report. Also, the data Hakala used was from both (1) the
fabricated metal and wood products industry group and (2) the
business services industry group. We are unclear as to how these
industry groups are similar to petitioner. Hakala admitted that
the comparability is somewhat limited and “not a very good fit”.
Nevertheless, he claimed that the data “provided information”.21
20 This 16.77 percent (18.18 percent in Hakala’s first
expert witness report) is determined as an average of the
information for 1995 and for 1996. Hakala has not explained how
there could be a plausible scenario in which an “arm’s-length
investor” would take into account 1996 information, including
1996 interest rates, in agreeing to compensation payments in
1995.
21 Hakala’s justification at trial for use of the
Panel/Aspen data from the “Fabricated Metal and Wood Products
Industry Group” and the “Business Services Industry Group” to
determine a base salary for Jack was as follows:
(continued...)
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