Well, it's not always 40x. Here in Norway, it's more often 3x-5x (except in the largest companies.)
And don't knock the value of determining a vision and strategy: people don't just wake up in the morning knowing what they should be doing at the office today/this week/this year. If you don't think a clear vision and strategy matters, just ask Yahoo.
I don't think we neccesarily disagree about that, it's just that "setting a strategy" by itself means diddly-squat, so giving that as your task description is needlessly vague. "Proactively implement executive paradigms"
I'm glad it's like that in Norway. You're a lot saner than most countries. Here in America 40x is closer to the mark. And i'm not knocking the value of thinking carefully about the next step. That's an obviously important thing. I just don't see why someone should be paid so much more to sit around thinking about the next step than the people who actually implement the "vision."
Having spoken to actual CEOs, I think it's a bit of a stretch to put them in the same class as famous architects and composers. The latter are identifiable, and to some degree quantifiable, skillsets that require training and a certain degree of talent. I'm not so sure you can say the same thing about being the guy who makes sure that cross disciplinary paradigms for excellence synergize with the vision's core values.....
Wouldn't "setting a strategic vision" be more akin to "let's write a happy little ditty about love in the spring" than actually sitting down and composing a song with notes for all the various instruments?
The reason is that the market value of companies who pay 39x is less than those who pay 40x. 40 may not be the perfect number, but the market is working toward finding it.
In other words, CEOs get paid X under the premise that they will cause the value of the company to increase by more than X.
I don't understand why people assume efficient markets. This is a good example of a market where I'd assume that the market is not efficient - there are poor information flows about CEO value; empirically, CEOs who are paid a lot don't often seem to steer their companies well; there are skewed incentives for the board since board members may very well be CEOs at other companies; there's very indirect shareholder control over pay; the company as a whole is unlikely to fail if they overpay since CEO pay is usually a small part of the whole budget, etc. Shouldn't you have to prove the surprising premise that the market is working?
And don't knock the value of determining a vision and strategy: people don't just wake up in the morning knowing what they should be doing at the office today/this week/this year. If you don't think a clear vision and strategy matters, just ask Yahoo.