And there's nothing subtle anymore, either, about bringing in the Ayn Rand style of "debating" by putting people down. I may be the one missing the subtlety no

And there's nothing subtle anymore, either, about bringing in the Ayn Rand style of "debating" by putting people down. I may be the one missing the subtlety now, but if you are referring to my phrasing, I didn't intend any insult. From your comment (voted below zero before I upvoted and replied) I felt you were being unreasonably dismissive of a potential explanation that I found interesting and had not heard before. There's nothing "subtle" about a plain racket. The theory offers an explanation of why stockholders might rationally offer a generous severance package to a CEO. I agree that the "racket" theory has greater explanatory power, but I found it worth contemplating alternative explanations. Maybe "subtle" is the wrong word? "Counterintuitive"? the CEO needs only work a few months to have nothing to worry about for the rest of his life In practice, though, CEO's worry tremendously about their ability to accumulate further wealth. I wouldn't be surprised if this worry increases the greater their current salary. And from the shareholders' point of view, it's the CEO's perceived risk that affects their decision making, not the actual risk. Shave a couple orders of magnitude off that pay gap, and then the argument might, just might, begin to make sense. Well, no. As a theory to explain current behavior, I think this theory is actually more applicable the greater the discrepancy in pay between the CEO's current job and the other jobs available if they are fired. You are right that the situation would be different the if the gap was less, but that doesn't mean the theory is not relevant when the gap is large. Maybe you'd prefer looking at it from a "Prisoner's Dilemma" perspective. Assume you have a extremely-well-paid self-interested psychopath making the executive decisions for your company. Ideally, this would not be the situation you find yourself in, but let's assume it's the case. Assume that as a rational (read, "amoral") shareholder you wish to maximize your gains, which is positively but nonlinearly correlated to the company's profitability. How do you best achieve this? Perversely (and to me counterintuitively) reducing the downside to the CEO for risky decisions may be a strategy with a positive return.