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and Mr. Menard’s bonus plan discussed, infra, Menards had no
written bonus plan for its officers. However, Menards’s
executives met with Mr. Menard to discuss performance goals and
compensation. Menards regularly paid low base salaries to
executives, supplemented with large bonuses.9
2. Mr. Menard’s Compensation Plan
In addition to the forms of compensation available to all
employees, Menards pays Mr. Menard an annual bonus. Since
1973,10 Mr. Menard has received an annual bonus equal to 5
percent of Menards’s net income before taxes (the 5-percent
bonus). The 5-percent bonus is subject to the following
reimbursement agreement: In the event that the Commissioner
disallows as a deduction any portion of Mr. Menard’s
compensation, Mr. Menard must repay to Menards the entire amount
disallowed.
8(...continued)
company’s profitability that year and the employee’s tenure with
Menards and ranges from 2.5 percent to 15 percent of the
employee’s salary.
9For example, in TYE 1998, Lawrence Menard (L. Menard),
operations manager, received a base salary of $45,000 and a bonus
of approximately $180,000.
10Al Pitterle, Menards’s outside certified public accountant
at the time, originally suggested an annual incentive bonus for
Mr. Menard. On Jan. 15, 1973, Menards’s board of directors,
consisting of Mr. Menard, L. Menard, and Jeffrey E. Smith, agreed
that Mr. Menard’s bonus should reflect his efforts to produce
profits for the company. The board instituted the 5-percent
bonus at another meeting on June 6, 1973.
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