You not only need the best ladders for the job nut also the safest… meeting all regulatory requirements. Without making sure of safety you could leave yourself open to claims and legal action….

If, you as a company's board member, knew for certain that by hiring a certain CEO the company would increase the bottom-line by $25 million [before the cost of his or her salary, of course] a year, what would be a rational amount to spend for that certain CEO's services. The answer, of course, is any amount up to one dollar less than 25 million because up to that point, the company is still making more of a profit, right? Yes, even in this hypothetical scenario it is far more complicated than that because the salary of the CEO will change the bottom-line numbers but the priniple behind the thought experiment remains be solid.

Always keep in mind that true wealth is control over the disposition of assets and has nothing to do with who owns the deed to the asset. If I control the use of your car (who, when and where), I effectively own it except that you have to pay the taxes and beg me to use it. If we allow bureaucrats and politicians to set CEO pay, we will have the bureaucrats/politicians as the true owners/controllers of the firms and get results based upon their levels of competence (usually not very high), not the CEO's.

The SEC should pass a regulation requiring that all publicly traded companies allow their shareholders to vote on the following (binding) resolution each year.

"The total compensation of both the CEO and the CFO shall not exceed $1 million in the coming fiscal year."

Those who dislike government meddling in business have little to complain of here since the government isn't telling any business how to set salaries. The government is just requiring that business owners be allowed to vote on a specific option.

What would happen of such a regulation were in place? Senior executives would complain long and loudly. Many large shareholders — especially pension funds — would gladly vote for lower compensation. Many mutual funds would feel pressured to do so. My guess is that the resolution would pass at many companies.

There would then be significant (downward) pressure on executive salaries across the board. If you're the CEO/CFO of a big company, there are very few employees who you think should be paid more than you are. Of course, this won't allow you to pay people (much) less than they could get elsewhere, but the number of people for whose services the "market" is willing to pay more than $1 million per year is small. The very best baseball players, rock stars, entrepreneurs and Wall Street traders would still make millions, but only because any attempt to lower their pay would cause them to go elsewhere with their talents.

Some would say that this plan won't work since the companies whose shareholders agree to pay more than $1 million per year (whether they be public or private companies) will snap up all the "best" executive talent. Maybe. But, our ability to measure executive talent is so limited that it would be hard for any company to easily identify a CEO candidate who is significantly better than many other candidates for the job.

There is a sense in which such a scheme, if implemented, would amount to implicit collusion among the employers of senior executives. Perhaps. But collusion in the service of class warfare is no vice.

The SEC should pass a regulation requiring that all publicly traded companies allow their shareholders to vote on the following (binding) resolution each year.

This requirement would be undue meddling in corporate governance.

On the other hand, ordering electoral procedures of all sorts on corporate employees wishing to bargain collectively is essential to the democratic order.

How many of us could oversee organizations employing thousands or even hundreds of thousands of employees? How many of us have the judgment necessary for deciding when to expand a product line, close a factory, or relocate a headquarters? How many of us have the people skills required to ensure that teams of workers perform together productively, day after day?

The honest answer is "not many."

Honest or deferential?

If we chose fortune 500 CEOs by lot among graduates of reputable universities with a B average or better and paid them a quarter million dollars a year, I suppose little would change. Competition for the positions would still be fierce, because a quarter million is still a very enviable salary, and the perks of being a Fortune 500 CEO far exceed the salary.

Some of these CEOs would preside over multi-billion dollar profits and some would preside over losses, because profits of this magnitude are characteristic of a Fortune 500 company.

No test we could perform a priori could distinguish the CEOs presiding over the largest profits from the others, but people would nonetheless say that the CEOs presiding over large profits are "more valuable". This observation is an instance of post hoc ergo propter hoc.

I believe so, because I accept a Hayekian theory of spontaneous order in a market economy, and I therefore believe that effective central planning is impossible. That's why I follow this site. A few CEOs don't decide which productive organizations succeed in the market in a given season. Millions of free consumers decide.

I don't only believe that central authorities in a planning apparatus are not smart enough to plan large-scale economic organization. I believe they cannot be smart enough. Large-scale economic organization can exist in a market economic. It just can't be "planned" in the conventional sense.

Similarly, many people believe that Presidents of the United States presiding over the nation during times of relative economic prosperity must be responsible for the prosperity somehow. Muirgeo is a good example. These people talk about their favorite presidents this way, just as Don talks about corporate presidents in the nominally "private" sector this way.

Some "libertarians" seem to believe that practically omniscient central planners are impossible only in the socialist state sector. In the nominally "private" sector of a corporative state, expecting these miraculous wise men to add incredible value to resources through their unparalleled foresight and boundless intellect is completely reasonable.

As a libertarian, other words came spontaneously to my mind. "The President is only one man." I think that sums it up.

I also oppose enforcement of any contractual provision prohibiting this behavior by a CEO. Corporations may write any terms they like into any contract they like. I just don't want states enforcing these particular terms.

Do companies that pay the most for their top executives monopolize the executive talent and therefore create a less competitive market?

No. The companies that pay the most for their executive talent are the ones that believe a theory of "executive talent" that somehow correlates this metric, however vaguely measured, with the future performance of the companies.

In reality, large companies generating large profits have thousands of factors of production, even tens or hundreds of thousands. The CEO is only one of these factors and not a particularly critical one. In fact, the larger the company and the larger its profits, the less critical a particular CEO is to the company's success.

Similarly, large, national economies cannot be centrally planned. Particular statesmen are not simply inept at economic planning. That's not the theory accept. Central planning for optimal utility is fundamentally impossible, because a large, national economy is a chaotic, dynamic system.

Maximizing utility within a nation (or the profitability of a large corporation) requires satisfying millions of free consumer-producer-investors simultaneously, and central authorities just can't do that. If they could, I'd be a socialist.

Where is the statistical evidence that high CEO salaries correlate with future corporate profitability? Measuring this correlation is trivial. I only need to know CEO salaries and corporate profitability five years later. The relevant data presumably are public, for publicly traded companies at least. Where is the measurement?

If, you as a company's board
"

Although thought experiments are terribly unscientific, nevertheless they remind me of Albert Einstein thus make me feel so important.

Here is another thought experiment:

If most of what CEO does are things similar to President Johnson's taking all the silver out of our coins, thus CEO is increasing profits for himself and other shareholders but decreasing the wealth within the pockets of the plebeians. He gets paid to take the real lobster out of our can of soup? He gets paid to rob us? That old weirdrdrdo?

Gimme a break
!

Patience.