Supposedly outrageous CEO compensation has been a popular target of media reports and political maneuvering recently. Though many executives receive pay in a year that is well beyond what many people will earn in a lifetime, the argument about CEO compensation is not whether it is high – it is whether this high pay is something “bad” or “unfair.”

In a free-market system, a worker’s pay represents their value to the company and the scarcity of similar workers in the marketplace. In theory, this means every workers’ pay, whether a janitor our a Fortune 500 executive, represents an exact measure of how much they contribute to the company and how hard they would be replace if they quit.

Using this logic, Steve Jobs’ $646 million payday for 2006 is proportional to the value he added to Apple Inc. (NDAQ:AAPL) – if his pay was too high shareholders would not tolerate it, and if it was too low Jobs would quit.

In other words, in a truly free market economy, the very existence of high executive compensation means it is justified. Food for thought in a sea of arguments claiming CEO pay is out-of-control.