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To determine the base salary for 1995 and 1996, Hakala
increased the 1994 theoretical base salary of $207,000 by 4
percent per year. Thus, the base salary for 1995 and 1996 would
have been $215,280 (207,000 x 1.04) and $223,891 (215,280 x
1.04), respectively. Hakala then determined the bonus amounts
based on a percentage of the operating income before officers’
compensation. In his expert witness report, Hakala explains as
follows:
The bonus percentage is solved based on the projected 4% per
annum rate of growth, the expected operating expenses before
officers’ compensation in each future year and a required
average net operating return on operating assets of 18.18%.
Based on our analysis we calculate that the reasonable
compensation for Mr. Brewer to achieve a 18.18% investor
return is $544,419 in 1995 and $448,620 in 1996. This
corresponds to a bonus of $329,568 in 1995, which would be
65.8% of theoretical operating income, and a bonus of
$225,022 in 1996, which would be 31.9% of theoretical
operating income.
In his rebuttal report, Hakala noted that his revised
adjusted average required operating return on net operating
assets (16.77 percent, rather than 18.18 percent) resulted in his
increasing the recommended compensation level for each year, as
described supra. However, he attributed this change entirely to
recalculation of the weights for debt and equity.
Hakala’s discussion of the Panel/Aspen data described supra
does not seem to affect his conclusions at all, except as to how
21(...continued)
A. Correct.
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