There is something very very very wrong with big corporate America, whenever execs of poorly performing companies manage to squeeze $70 million in compensation. I fail to see any reasoning behind decisions like that, except old&stupid "well... it's the way these things work"
It's no different in other industries. Teams have to pay star players lots of money, even if they later do badly; publishers give big advances to famous writers, and sometimes their books flop. It's just the way the world works, not some specially sinister thing about CEOs.
As far as I know, this is largely an American (U.S.) phenomenon. I don't think many other countries have the kind of disparity between managers and other employees that American corporations have.
I have also read analyses suggesting compensation is often influenced by the fact that board members are usely CEOs of other companies who know that their compensation will go up if the compensation of other CEOs go up. If true, that would qualify as "sinister" in my judgement.
Stockholders have very little control over companies. The boards of directors tend to be inbred--CEOs from various firms serve on each others BoDs. So, you get what you get.
I doubt any CEO's salary comes near the theoretical market value of the job.
In Japan, CEOs make much, much less, and they don't seem to be hurting as a result. I'm inclined to dispute the "superstar" theory of upper-level executives. Semel's defining moment came when he decided not to buy google. This is tantamount to a baseball player deciding not to swing the bat--hoping for a ball. Not much of a superstar.
How can you argue against the superstar CEO theory? People like Steve Jobs, Bill Gates, Henry Ford, etc.
People on a Board of Directors fire superstars because they're hard to control and hire losers that are "team players". Just because they implement the theory so horribly doesn't mean it's not a valid one.
I wouldn't look to Japanese companies for any pointers on staying innovative or disruptive. Japan is still all about the status quo, risk-aversion, and bureaucracy. They should be so much further along it's scary and it is hurting them: a superstar at Sony would have created the iPod.
[Note: I hope I'm not pissing people off by adding these links, but I (along with a few friends) read the books and summarized them for you, for free, so I don't think you're getting a bad deal out of it - and as business books, they are pretty relevant, or at least I think so, which is why I read them in the first place.]
Jim Collins, in Good to Great ( http://tinyurl.com/ypwu8a ) comes out against rock star CEO's, saying that those who turned the companies he studied around were decidedly not rock stars. He has a term for these people, "level 5 leaders", which to me sounds like some kind of weird cult mumbo jumbo, but his point is well taken.
Even The Economist has had a number of editorials lately saying that pay should better respect performance. For instance:
The sun is setting on the tall, white MBAs and rising on short, asian engineers.
- a short asian engineer