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Mr. Hakala admitted that there were six circumstances not
considered in his report that could affect his findings in
petitioner’s favor. First, he stated that an employee who serves
in multiple positions within a company may be compensated at a
higher level to reflect the additional duties and
responsibilities. He recognized that unlike the CEOs of the
guideline companies, Mr. Reeves served in all of petitioner’s
executive and managerial roles. Consequently, his compensation
should reflect the combined salaries of the positions he held.
See Elliotts, Inc. v. Commissioner, 716 F.2d at 1246.23
Second, Mr. Hakala testified that typically an employee of a
company like petitioner that has variable performance years and
who is underpaid during those years is compensated at a higher
amount in profitable years to make up for the lower income
years.24 In addition, when the employee is reimbursed at a later
date, the time value of money is often considered in increasing
compensation. Mr. Hakala’s report did not take into account that
in some of the years before the fiscal years at issue petitioner
either underpaid Mr. Reeves or did not pay him at all.
23 The average combined executive salaries for the five
guideline companies during the fiscal years at issue were
$1,019,418 and $1,124,167, respectively.
24 Mr. Hakala stated that the common way to compensate
employees in businesses with volatile performance is through a
compensation plan that pays a fixed salary, with a bonus during
good years and no bonus during years in which performance is
poor.
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