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Respondent offers several specific criticisms of Mr.
Rowley’s valuation method. First, respondent criticizes Mr.
Rowley’s failure to consider restrictions on the time before
exercise of the options, arguing that this omission artificially
inflated the stock options’ values. Secondly, respondent
challenges as unsubstantiated Mr. Rowley’s assumption that the
underlying stock would appreciate at an annual rate of 10 percent
over a 10-year period and that the CEOs would hold the options
for a full 10 years. Respondent also argues that Mr. Rowley
inappropriately obtained the 10-percent appreciation rate from
SEC proxy statement filing instructions that are unrelated to the
valuation of stock options. Finally, respondent criticizes Mr.
Rowley’s methodology for refusing to take the possibility of
dividends into account even though the payment of dividends
decreases a corporation’s value and results in a corresponding
decrease in stock option value.
4. Analysis
a. Comparable Companies
Although Mr. Rowley and Dr. Hakala used several different
companies in their respective comparison groups, the two experts
agreed that five companies were comparable to Menards: Home
Depot, Kohl’s, Lowe’s, Staples, and Target. On brief, respondent
stated that the five companies “are probably a sufficient sample”
for comparing CEO compensation. On the basis of the experts’
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