|Dr. Afzal Ahmad|
- Documenting the doctor’s activities over the years, putting a value to it and keeping a running tally of how compensation is still due. This can be done to “reimburse” the shareholder for those start-up years when the money was not there to properly compensate the shareholder, for example.
- Setting up a bonus formula and following it from year-to-year. If there isn’t enough cash to pay out the amount generated by the formula, then the business would accrue it as “compensation payable.” It is not deductible until paid, but it does indicate that there is a compensation plan in place.
- Having an independent Board of Directors, who in turn decide the amount of compensation. This can be done on an annual basis, preferably earlier rather than later in the year. This technique is not often seen in practice.
- Valuing the company on a regular basis (perhaps as frequently as annually). The intent is to attribute the increase in the value of the business to the shareholder’s efforts. The business would then share some of that increase via a bonus.