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During its 1992 through 1999 fiscal years, petitioner did
not have a written compensation policy as to the payment of
either base compensation or bonuses to its employees.
In each fiscal year, petitioner generally paid Mr. Wechsler
and its other officers (1) a base salary, (2) a December or
holidays bonus and (3) a May or fiscal-yearend bonus. The
December bonuses typically were based on petitioner’s year-to-
date earnings and the assumption of petitioner’s continuing
profitability for the remainder of that fiscal year. Generally,
the December bonuses were smaller than the May bonuses.
Toward the middle of May, Mr. Wechsler prepared a
spreadsheet listing all of petitioner’s employees and the
proposed bonuses and salary adjustments for them. Mr. Wechsler’s
proposed total May bonuses were based on his estimate of
petitioner’s realized and unrealized profits for the fiscal year,
which he determined primarily by using petitioner’s most recent
monthly FOCUS reports, though he gave more weight to realized
profits because unrealized profits had not been reduced to cash
and petitioner wished not to liquidate investment assets. In
addition, in determining the proposed May bonuses, Mr. Wechsler
took into account, to a small degree, his current expectations
and outlooks for the securities industry, petitioner, and
petitioner’s portfolio.
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