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intended as compensation for TYE 1998 would be reported on the
TYE 1998 proxy statements, pursuant to the SEC instructions.
Accordingly, we accept Dr. Hakala’s compensation figures taken
from the TYE 1998 proxy statements.
c. LTI Compensation Valuation Methodology
In defense of Mr. Rowley’s valuation methodology,
petitioners cite articles in the American Compensation
Association Journal.46 Though the articles lend support to the
existence of Mr. Rowley’s Growth Model, we are not persuaded that
the model is generally accepted by valuation experts or that it
provides a reasonably accurate value for the LTI compensation.
Petitioners have failed to establish that Mr. Rowley’s selection
of a 10-year period until exercise of the options and a 10-
percent growth rate was appropriate. We find it particularly
troublesome that Mr. Rowley derived the 10-percent growth rate
from the SEC instructions for reporting potential realizable
value of stock options. At trial, Mr. Rowley admitted, and Dr.
Hakala confirmed, that the SEC requirement is actually intended
to illustrate amounts that executives can earn on stock options
at a 10-percent growth rate and is not a rule for valuing stock
options.
46See, e.g., Buyniski & Silver, “Determining the
Compensation Value of Stock Options”, 9 Am. Comp. Association J.
66 (Jan. 2000) (contrasting Black-Scholes with another model
similar to Mr. Rowley’s Growth Model called the Present Value of
Expected Gain).
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