S-Corporation shareholder compensation is a difficult issue to deal with: how much salary vs. how much to take in distributions?
A recent article in The Tax Advisor provides an excellent summary of two court cases that show some guidance on these issues. The article is detailed and a bit lengthy, but you can "skip to the end" to get a good summary of relevant factors to consider.
Rather than recreating the wheel, I've linked directly to the article: http://www.aicpa.org/publications/taxadviser/2011/august/pages/nitti_aug2011.aspx
As always, if you have any questions, please call or email me.