Menard, Inc. - Page 39

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          CEO fixed by an independent board of directors of a publicly                
          traded company is more likely than not to represent legitimate              
          compensation established by the marketplace and not disguised               
          dividends.  Although the Court of Appeals for the Seventh Circuit           
          made it abundantly clear in Exacto Spring Corp. that a trial                
          court should not ordinarily second-guess a corporation’s decision           
          regarding the compensation of its CEO as long as a satisfactory             
          rate of return on investment, adjusted for risk, is obtained for            
          shareholders, the Court of Appeals for the Seventh Circuit did              
          not extend the same criticism to the marketplace.  In fact, the             
          Court of Appeals for the Seventh Circuit acknowledged the                   
          reliability of compensation decisions by publicly traded                    
          corporations but apparently was not presented with, nor did it              
          decide, whether evidence that comparable publicly traded                    
          companies paid substantially less compensation to their CEOs was            
          sufficient to rebut the presumption of reasonableness that                  
          attaches to the compensation paid to a CEO of a closely held                
          corporation like the one in this case.                                      
               To answer the question, we turn to section 1.162-7(b)(3),              
          Income Tax Regs., which provides:                                           
                    In any event the allowance for the compensation                   
               paid may not exceed what is reasonable under all the                   
               circumstances.  It is, in general, just to assume that                 
               reasonable and true compensation is only such amount as                
               would ordinarily be paid for like services by like                     
               enterprises under like circumstances.  * * *                           







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