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Mr. Matthews concluded that the average 60.2 percent of its net
revenues that petitioner paid in aggregate compensation from 1992
through 1998 was reasonable, since it was virtually equal to the
average of 60.1 percent of net revenues paid in aggregate
compensation computed for the 27 broker-dealers he examined. He
further observed that the average 68.9 percent of its pretax
income before aggregate compensation that petitioner paid in
compensation from 1992 through 1998 was well below the mean or
group average of 84.1 percent of pretax income before aggregate
compensation paid in compensation computed for those 27 broker-
dealers. He stated that those results indicate that petitioner
(1) retained a higher portion of its “discretionary income”
(i.e., pretax income before compensation) and (2) paid a lower
portion of its “discretionary income” as compensation than did
most of the publicly traded broker-dealers. Mr. Matthews added
that, in his experience, smaller broker-dealers with a limited
range of activities, like petitioner, would pay a larger
percentage of their revenues to senior management employees than
would larger, more diversified broker-dealers.
Mr. Matthews noted that, for petitioner’s 1992 through 1999
fiscal years, Mr. Wechsler’s annual compensation represented the
following percentages of the aggregate annual compensation
petitioner paid to all its employees:
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