How does the IRS define Reasonable Compensation?

Internal Revenue Code section 162(a)(1) allows income tax deductions for various business expenses, including “a reasonable allowance for salaries or other compensation for personal services actually rendered.”  Reg. section 1.162-7 (b)(3) says, “It is, in general, just to assume that reasonable and true compensation is only such amount as would ordinarily be paid for like services by like enterprises under like circumstances. The circumstances to be taken into consideration are those existing at the date when the contract for services was made, not those existing at the date when the contract is questioned.”