There are many people who believe that CEO compensation has skyrocketed not because CEO value has skyrocketed, but because of a lack of downward pressure on their compensation packages.
CEO compensation has to get approved by a board made up of other executives. As such, these board members have every incentive to lean towards granting generous raises, and virtually no incentive towards toeing a hard line.
This problem is exacerbated by the universal belief that every CEO is above average. As such, every CEO can say "we all agree I'm in the top quartile of CEOs, right?", and everyone will agree, and then he'll get a pay package that's top 10-25%.
And then, because CEO tenures are shrinking, this cycle will repeat, often, in a cycle that has absolutely nothing to do with the value created for shareholders, and absolutely everything to do with executive compensation schemes having gone off the rails.
CEO compensation has to get approved by a board made up of other executives. As such, these board members have every incentive to lean towards granting generous raises, and virtually no incentive towards toeing a hard line.
This problem is exacerbated by the universal belief that every CEO is above average. As such, every CEO can say "we all agree I'm in the top quartile of CEOs, right?", and everyone will agree, and then he'll get a pay package that's top 10-25%.
And then, because CEO tenures are shrinking, this cycle will repeat, often, in a cycle that has absolutely nothing to do with the value created for shareholders, and absolutely everything to do with executive compensation schemes having gone off the rails.