Menard, Inc. - Page 45

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          numbers, Mr. Menard’s compensation exceeded the 90th percentile             
          of total direct CEO compensation for TYE 1998.41                            
                         b.  Respondent’s Expert                                      
               Respondent’s expert on valuing CEO compensation was Dr.                
          Scott D. Hakala, principal, CBIZ Valuation Group, Inc.  Dr.                 
          Hakala has testified previously before this Court as a reasonable           
          compensation expert.  See, e.g., Brewer Quality Homes, Inc. v.              
          Commissioner, T.C. Memo. 2003-200.                                          
                              (i) Comparable Companies                                
               For his analysis, Dr. Hakala selected a comparison group and           
          divided it into two sets.  The first set comprised the other two            
          major home improvement retail chains, Home Depot and Lowe’s,                
          which Dr. Hakala described as “directly comparable” to Menards.             
          The second set contained seven major retail chains with “somewhat           
          similar operating characteristics” as Menards:  Dollar General,             
          Kohl’s, May Department Stores, Office Depot, Staples, Target, and           
          TJX.                                                                        
                              (ii) Proxy Statements                                   
               Instead of using TYE 1999 proxy statements for analyzing TYE           
          1998 compensation, Dr. Hakala extracted data from TYE 1998 proxy            


               41Mr. Rowley also compared Mr. Menard’s compensation to 17             
          leading U.S. retailers using the Hay Retail Industry Senior                 
          Executive Remuneration Survey.  Because petitioners failed to               
          establish that these surveyed companies are comparable to                   
          Menards, we do not consider this portion of Mr. Rowley’s                    
          analysis.                                                                   




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