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Mr. Reeves testified that one of the reasons petitioner paid
him a large bonus in its FY 1995 was to compensate for the years
he was underpaid. Multiplying the sales ratio of 8.25 percent by
petitioner’s total sales in FY 1985 through FY 1994, the Court
finds that Mr. Reeves was underpaid for 6 years:25
FY Amount underpaid
1987 $40,837
1988 61,842
1989 63,723
1990 58,098
1991 54,609
1992 83,414
The future values of the amounts underpaid as of December
31, 1995, were $81,102, $111,647, $101,436, $87,373, 71,771, and
$94,021, totaling $547,350.26
Third, Mr. Hakala stated that a company experiencing losses
may significantly decrease compensation to its CEO, and using the
company as a guideline can result in understatement of executive
income. Of the five guideline companies, in FY 1995 one
experienced significant losses, and in FY 1996, three experienced
substantial losses.27 The five guideline companies’ financial
25 8.25 percent was computed by averaging the sales ratios
(9.4 percent and 7.1 percent) used to determine reasonable
compensation under the “percent of sales” method.
26 The future values were determined using the applicable
Federal rate compounded semiannually under sec. 1274(d).
27 Mr. Hakala testified that he chose the guideline
companies because they developed and sold nutritional products
and not because they sustained profits or losses.
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