The generous rewards for chief executive officers reflects "market failure" and can't be justified by arguing that the top job gets highly paid because it has more risks, according to a new report.

The report, The Risk Myth:
CEOs and Labour Market Risk says that bosses might like to think of themselves as risk- takers, but their job is relatively low risk in comparison to many others. Certainly not enough to justify those bloated pay packages. Between 31 July 2005 and 31 July 2006 FTSE-100 CEO turnover stood at 14 per cent, compared with a national average of 18.3 per cent. And of the 14 FTSE-100 CEOs who left their posts during period only one was made redundant (he left with a pay-off of £5 million). In solid contrast to the situation facing ordinary wage and income earners.

The author, Nick Isles, says evidence shows overpaying people at the top can damage rather than enhance the organisation by reducing morale and commitment.

"Winner-take-all effects are in effect a form of market failure. We need vibrant capitalist organisations. We need to encourage investment in the people who run and work in them. And these leaders deserve high levels of remuneration suitable for exceptional people doing great jobs running great companies. But this should not be at the cost of ultimately
perversely damaging the prospects of long-term success for those companies.

"High levels of inequality in wider society act as a brake on social mobility and high levels of inequality within organisations act as a brake on performance."

The paper comes up with a number of suggestions to fix the problem, including setting up a High Pay Commission.

Certainly something needs to be done.

As David Wiedner from MarketWatch pointed out in this piece that appeared just before Christmas, the payouts are now out of control:

"We all know that when it comes to pay, we deserve every penny. We've earned it. There must come a point - when you can buy almost any house, retire comfortably, go anywhere, pick up the check for a party of 50 at an expensive restaurant, perhaps - that enough is enough.

"And let's not lose perspective. Wall Street bankers aren't firefighters and doctors. They're not on the ground in Darfur trying to deliver food and shelter. Responsibility for an investment bank doing billions, even trillions of dollars in transactions is weighty stuff. But come on, even if you're a shareholder you have to ask who does more for you, John Mack or the teacher who spends seven hours a day with your kids?"