As promised (though a day late), I combed through the Policy Analysis paper “Executive Pay: Regulation v. Market Competition” that I bashed in my last post. Here are three of the greatest hits from the paper’s attempt to justify CEO pay:

The authors write, "In a recent Watson Wyatt survey of board members of major corporations and institutional investors, we found that board members believe that the pay-for-performance model directly contributes to improved corporate performance (2)."

I would hope so, given that they set the pay - but this belief is part of the problem, not a justification for CEO pay.

In a table attempting to prove that there is “pay-for-performance,” the paper notes that CEOs for “Companies Creating Low Returns” earned $8.8 million in 2005 and $5.5 million in 2006 (3). The authors have lived in a pay-for-recommending large CEO pay (normally called being an executive compensation consultant) bubble for so long that rather than think – huh, that is a lot of money for what we are calling “low returns" - they instead argue that  the 38% drop, to a paltry $5.5 million, shows that pay-for-performance works. Sad, really.

Then, in a circular logic finale, the paper states: “Any employer who underpays an employee relative to the market risks losing that employee and the value he or she brings to the company. Boards try to ensure continuity of management, but they face a constant threat of losing a CEO if more lucrative opportunities arise” (4). Notice that the authors use the ridiculous levels of CEO pay that currently exist in most companies, they refer to this as “the market" for CEO pay, to justify continuing to pay CEOs ridiculous amounts.