Category Archives: Articles

Contingent Compensation

Contingent compensation may be a discretionary bonus or an amount based on a written formula.  Either way, it must meet the same standards of reasonableness and compensatory intent as traditional salary compensation. To determine whether the amount is reasonable, carefully consider the facts and circumstances which existed at the time the bonus was declared or…
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The Multi-Factor Approach

Beginning with Mayson Manufacturing Co. v. Commissioner, 178 F.2d 115 (6th Cir. 1949), the courts have developed various factors to consider in determining whether compensation amounts were reasonable.  Some of the key factors are: ·       The employee’s qualifications, including education and training, ·       The nature, extent and scope of the employee’s duties, ·       The amount…
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Using Comparability Data

We often need to determine reasonable compensation amounts for executives, attorneys, charity managers, trustees, or retirement plan service providers.  This is an important process and should not be taken lightly.  At first blush, it is tempting to assume that the market establishes reasonableness.  Hence, we often use benchmarking, which involves comparing one person’s pay level…
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The Hypothetical Independent Investor Test

In determining reasonable compensation, the courts (and the IRS) have looked to a number of factors and have used various approaches over the years.  Typically, the approach has been to apply from 5 to 12 (or more) factors to determine whether compensation amounts were reasonable.  In recent years, the courts continue to use these factors;…
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