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In the IRS determination of reasonable compensation for owner-managers, one of the main considerations is that of comparable wages. Maximum reasonable compensation would be the highest amount of compensation, both wages and bonus, which would be allowable to be used as a business expense for services rendered in comparable circumstances. Based on IRS cases, ERI developed the definition in terms of the standard error of the distribution of compensation for comparable executives. This measure is approximately plus/minus 2.01 standard error. Very similar to the standard deviation, the standard error represents the range of pay in which one might find 90% of the population in a skewed distribution.

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