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.

AMR Corporation (NYSE:AMR) rejected three proposals relating to executive pay during its annual meeting yesterday. First, the Allied Pilots Association had sponsored a resolution to give shareholders an advisory vote on executive compensation each year; however, this proposal was rejected by 59% of AMR's shares. A second resolution that was also rejected would have required that 75% of all stock options and bonuses given to executives were tied to performance metrics. Finally, a third proposal relating to how director votes were cast was also rejected.

So, why are all of these executive pay proposals being rejected by companies? Well, the fact is that many average employees that are affected by these proposals do not actively vote their shares. Rather, the company and institutional shareholders close to the company tend to be the only ones casting the votes. If these proposals are to gain any traction in the future, they will need to attract not only additional institutional interest but also the more common shareholders that tend to have a case of voter apathy.

New York Judge Arthur D. Spatt dismissed a lawsuit against three former executives of North Fork Bancorporation filed by a shareholder upset over $288 million in executive compensation. According to Splatt, "The Plaintiff contends that the statements made in the proxies regarding executive compensation were materially false and misleading because the Defendants failed to disclose the magnitude of payments that they would receive under their change in control arrangements after Capital One's acquisition of North Fork."

Compensation numbers for management have been an issue in merger situations as they may create conflicts of interest. For example, it is not uncommon - particlarly in a board where the CEO is also the chairman - to have a situation where a lower bid is recommended over a higher bid simply because they offer management greater change of control payments. While this lawsuit was unsuccessful, increasing shareholder dismay over such practices is certainly bringing regulatory attention to the matter.

The $1 pay for chief executives is becoming increasingly popular amongst public companies, but is it really anything more than a symbol? Last year, eight CEOs serving in S&P500 companies received the token pay while eight other CEOs in smaller companies also took the plunge. The most popular are Eric Schmidt of Google and Steve Jobs from Apple. Ironically, however, Steve Jobs received the highest compensation out of all public company CEOs last year when his stock options, grants, bonuses and other benefits were factored in. Meanwhile, Google executives continue to sell stock at a high rate - often millions of dollars worth on a daily basis!

To their credit, these CEOs appear to be embracing the pay for performance model more than others. This hasn't been a problem for them, however, since their stocks have been performing extremely well. Whether or not they would embrace a similar policy if their companies were in the process of a restructuring or turnaround is questionable according to many pay analysts. AFL-CIO director Daniel Pedrotty said, "The gesture looks all warm and fuzzy, but it's a facade. It obscures the real number of what an executive gets and in that sense is an insult to investors' intelligence. In the case of Apple it's even more serious amid allegations of options fraud."

Whether or not more executives embrace this model remains to be seen; however, many analysts and investors are convinced that the move is nothing more than an act amongst companies that have exceptional stock performance.

Supervalu Inc. (NYSE:SVU) CEO Jeffrey Noddle was awarded a pay package valued at $20.4 million after a great year for the company, which grew into the nation's third largest grocer. Noddle's salary included a base salary of $1.1 million and stock options and restricted stock worth $17.7 million. Noddle has run the cmopany since 2001 and oversaw the acquisition of 1,100 Albertson's stores last year.

Apple Inc.'s (NDAQ:AAPL) Steve Jobs took over the top spot as far as CEO compensation, according to an article in Forbes magazine. Jobs' $1 salary was dwarfed by $646 million in stock compensation for 2006, making him the highest paid executive in the US. In fact, this number works out to a shocking $310,576 per hour assuming a 40-hour work week. The number was more than twice the compensation of the next person on the list: Ray Irani of Occidental Petroleum, who took home $321 million - mostly in exercised stock options. Investors can't complain about performance at least, with Apple shares almost 100% off of their 2006 lows!

eBay Inc. (NDAQ:EBAY) CEO Meg Whitman received compensation in 2006 that amounted to $11.1 million, according to a regulatory filing on Monday. The majority of this compensation came from stock option awards that totaled $7.95 million on the day they were granted. The CEO also received a $995,016 base salary with a $221,008 bonus and $911,684 in non-equity incentives. Finally, other compensation included just over $1 million in accrued expenses including $773,467 for personal use of the company jet. Meanwhile, the stock is still down slightly from its 2005-2006 highs, but almost 40% off of its 2006 lows.

Countrywide Financial Corp. (CFC) announced today that its Chief Executive Officer Angelo Mozilo received $121.85 million in compensation and gains from exercised stock options and stock awards in 2006. Many investors are satisfied with his performance, however, as the stock gained 24% last year outpacing the 7% rise in the KBW Mortgage Finance index. The compensation itself included $89,939 for use of the company aircraft, $27,010 for a company car, $15,481 for country club costs, and $30,196 for tax and investment advice. His salary consisted of $2.87 million in salary, $19 million in option awards, $20.5 million in non-equity incentive awards, and $643,200 in other compensation. He also gained over $72 million from the exercise of over 2.3 million stock options and a $6.6 million gain from the vesting of over 170,000 shares. While all of this compensation seems excessive, as long as the performance is there many investors do not see a problem.