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So, he basically assumes that Wall Street has settled into an absurd equilibrium point where any one firm would have a massive incentive to break with the pack,

• time_management 18y ago
  No. It's more like this: there's a massive prestige cost in paying lower than "market", and a benefit to paying more. It's actually much cheaper to overpay executives and at-pay or slightly underpay junior people, which is what most "prestige" firms do.
• 3pt14159 18y ago
  Just because 1000 people want the job and are "qualified" doesn't mean they would do as good a job. Consider this example: Company A has 1000 employees that they pay 100 dollars a day, totaling $100,000. They can hire Joe to be COO for $1000 a day or Zach for $5000 a day. Based on both mens track record the company estimates that Joe will increase efficiency 1% while Zach will increase efficiency 10%. Since a 10% increase in efficiency will likely gross them $10,000 a week and only cost them $5000 (Zach's salary) they hire him instead of Joe. The same thing happens all over the place. Someone that can make a 10% change company wide is worth FAR more than someone that can only make a 1% change.