I think this theory is on track but not complete. It's correct that the risk and rewards for CEO are decoupled. However, the people who continue to hire and pay

I think this theory is on track but not complete. It's correct that the risk and rewards for CEO are decoupled. However, the people who continue to hire and pay ridiculous amount to these CEOs are no other than the investors and consumers. Yes, that's us. As investors, we irrationally pump money into growth sectors during the boom, into companies that can outperform expectation and increase profit margins, directly voting for 'talented' CEOs who can cut cost and increase revenue by all means. As consumers, we chase the best deals. Would you go with banks who only let you borrow a tiny amount in line with your credits on strict terms? Of course not, not when you can flip for a quick 100% gain within the next 6 months. We go with the most outrageous deal and lenders in turns have to create more outrageous deals to compete. Market behavior reflects the behaviors of its participant (duh). As long as investors and consumers indulge in irrational exuberance like there's no tomorrow CEO will continue to be overpaid and bubble will burst. Robert Reich says it best in his book Supercapitalism.