Question

Martin Myers was injured in an automobile accident and is suing for lost wages. Facts relating to this personal injury scenario are outlined in the following table. Assume you have been engaged by the plain-tiff’s attorney to evaluate economic damages, limited to lost wages.


According to Mr. Myers’s physicians, the subject in-jury has permanently damaged his cognitive functioning, specifically with regard to verbal communication and short- term memory. Based on these physical limitations, a vocational expert has presented the following opinions:
• Mr. Myers is incapable of returning to employment as a banking manager.
• He will be permanently limited to entry- level positions earning at or near minimum wage. As part of your data collection effort, you have asked to review Mr. Myers’s personnel file at Fifth Third and to interview the bank’s Human Resources Director. From the personnel file, you learned that Mr. Myers was paid an annual salary of $ 49,000 at the time of the injury. You also learned that his current position of branch manager was obtained on Jan. 1, 2012, the lat-est in a series of promotions since his initial hire as a part- time teller in 2003. Finally, you obtained the five-year wage history presented in the following table.


QUESTION CONTINUES:



Highlights of your interview with the Human Re-sources Director include the following:
• All bank employees received 3% raises in 2008 and 2011. Although such across the board raises have historically occurred at Fifth Third every few years, they are not guaranteed.
• Mr. Myers’s 2012 wages include a $ 2,500 bonus, which he was awarded because his branch achieved certain performance targets for the year.
• Mr. Myers’s ultimate career goal at Fifth Third was to become Vice President of Branch Operations, a position that currently pays $ 75,000 per year. He could reasonably have achieved this goal within five years. To complete your assignment, perform the following tasks:
1. Determine a reasonable assumption for Mr. Myers’s pre- injury base earnings. Explain your rationale for this determination.
2. Use the current federal minimum wage (at 2,080 hours per year) to determine Mr. Myers’s post- injury base earnings.
3. For years 2008 through 2012, calculate the annual growth rate for each year and the cumulative average growth rate for the entire period.
4. From the BLS web site (www.bls.gov), obtain the average annual percentage change in the ­Employment Cost Index (all civilian workers, ­total compensation, not seasonally adjusted) for the ten- year period 2003 to 2012.
5. According to the 2012 OASDI Trustees Report, what level of average annual wage growth is predicted for the period 2021 to 2086?
6. From your responses to items 3 through 5, determine a reasonable assumption for Mr. Myers’s future wage growth (to be applied to both pre- and post- injury base earnings). Explain your rationale for this determination.
7. Determine Mr. Myers’s normal Social Security retirement age at the date of injury, and use this as his work life expectancy.
8. Using the FRED database available at the St. Louis Federal Reserve web site (www.stlouisfed.org), determine the average 10- year Treasury constant maturity rate for years 1993 through 2012. Use this as your discount rate.
9. Using Dec. 31, 2013 as the valuation date, calculate the present value of Mr. Myers’s future lost wages. Wage growth should be applied only to future lost earnings (after the valuation date).
10. Based on the information provided, do you think it would be reasonable to consider an alternative scenario that assumes Mr. Myers would have achieved the contemplated promotion? Why or whynot?


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  • CreatedMarch 04, 2015
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