Menard, Inc. - Page 47

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          their options.  Dr. Hakala also intended that the 50-percent                
          discount account for the restriction on transferability of                  
          employee stock options.                                                     
               Next, Dr. Hakala calculated a 3-year moving average of the             
          stock options’ discounted Black-Scholes values, in order to                 
          “smooth out the volatility between varying magnitudes of options            
          awarded in different years”.43  Dr. Hakala based his decision to            
          use the moving average on the Financial Accounting Standards                
          Board’s Statement of Financial Accounting Standards (SFAS) No.              
          123.  According to Dr. Hakala, SFAS No. 123 requires proration of           
          stock option values over the vesting period and, as a result,               
          reflects stock option values over a continued period of                     
          performance.                                                                
                              (iv) Dr. Hakala’s Conclusion                            
               In Dr. Hakala’s opinion, Mr. Menard’s compensation was                 
          “dramatically higher” than compensation paid to the CEOs of the             
          comparison group companies.  Although Menards performed                     
          comparatively well with respect to growth and profit margins, in            
          TYE 1998, Mr. Menard’s compensation was, in Dr. Hakala’s opinion,           
          approximately seven times higher than the average of Home Depot’s           
          and Lowe’s CEOs’ compensation and significantly higher than the             


               43For example, when computing the value of stock options               
          granted in TYE 1998, Dr. Hakala averaged the discounted Black-              
          Scholes values for the stock options granted in TYE 1996, TYE               
          1997, and TYE 1998.                                                         




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