There is no rational basis for these phenomena
“A major study by the economists Xavier Gabaix and Augustin Landier, who happen to believe that current compensation levels are economically efficient,” writes the New Yorker, “ found that if the company with the 250-most-talented CEO suddenly managed to hire the most talented CEO its value would increase by a mere 0.016%.”
“After all, paying someone $10 million isn’t going to make that person more creative or smarter. One recent study, by Philippe Jacquart and J. Scott Armstrong, puts it bluntly: ‘Higher pay fails to promote better performance.’”
We are not dealing with facts or rational decision-making. We are dealing with an ideology. Shareholder value theory is harming shareholders. Cronyism among CEOs is taking advantage of it. Institutional investors are complicit. Regulators play at reforms that have no prospect of having a positive effect.
“So the situation is a strange one,” writes the New Yorker. “The evidence suggests that paying a CEO less won’t dent the bottom line, and can even boost it. Yet the failure of say-on-pay suggests that shareholders and boards genuinely believe that outsized CEO remuneration holds the key to corporate success.”
More here – Forbes