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compensation practices because they would place that investor in
the position of absorbing all of the downside in petitioner’s bad
years while not adequately allowing that investor to benefit from
and share in the upside in petitioner’s good years.
Mr. Hakala suggested a method for reasonably compensating
Mr. Wechsler and petitioner’s other top managers under which Mr.
Wechsler and those managers, in addition to their salaries, would
receive annual bonuses totaling 20 percent of petitioner’s
profits for that year before payment of bonuses. Mr. Hakala
explained that his approach would allow an independent investor
to obtain most of the profits from petitioner’s good years, yet
require that investor to absorb all of the downside from
petitioner’s bad years. He added that incentive compensation for
hedge fund managers is commonly set at 20 percent of the fund’s
annual trading profits. Mr. Hakala further determined that his
prescribed annual “bonus pool” money for petitioner’s managers
would then be allocated 40 percent to Mr. Wechsler and 60 percent
to the other managers. He based that allocation on certain
surveys of other finance industry companies in which the highest
paid officer in a surveyed company typically received around 30
percent to 40 percent of total officer compensation. Many of the
companies covered in those surveys were much larger than
petitioner.
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