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11/12/2015

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The hat worn when approving pay is indeed important, Dan. When executive compensation is not set by an independent board committee controlled by outside directors, it can run afoul of SEC rules, SOX law and IRS reasonable compensation regulations. Most challenges to "unreasonable compensation" involve self-dealing by majority shareholders who enrich themselves and/or cronies under the guise of competitive pay for performance. Failing to document objectively supportable reasons for "excess benefit transactions" to insiders is a recipe for disaster.

As one simple example of other goofs: when the 100% shareholder paid employees of his regular corporation in direct proportion to their family relationship ("compensation by consanguinity"), it led to a substantial settlement where much of such pay was restated as disguised dividends.

Sadly, there are as many reward blunders as are there employers.

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