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I’m partial to the Lake Wobegon explanation, which gets a mention in the article: > Alluding to the fictional town in the radio program A Prairie Home Companio

by paulgb 4y ago

I’m partial to the Lake Wobegon explanation, which gets a mention in the article: > Alluding to the fictional town in the radio program A Prairie Home Companion, Clifford (2017) describes the Lake Wobegon world of setting CEO compensation that fuels its growth: Every firm wants to believe its CEO is above average and therefore needs to be correspondingly remunerated. In other words, CEO pay isn’t just a way of attracting CEO talent, it’s also a way of signaling to investors that you have a good CEO. After all, who wants to invest in a company whose CEO (by the compensation committee’s own reckoning) is worse than average! This is rational for an individual company, but has the aggregate effect of inflating CEO compensation for everyone.

cbsmith 4y ago
As opposed to employees, where companies think their employees are average or below average?
- paulgb 4y ago
  Employee pay is also a signal, but a much more expensive one, because total payroll at a large company is usually orders of magnitude larger than the CEO’s compensation.
  - cbsmith 4y ago
    Yet oddly, it isn't seen as a much stronger signal...