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Tournament theory: why your boss is paid too much
Filed in archive executive pay by leon on May 10, 2008
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Why does the boss rake in obscene amounts of money while the rest of us toil for what feels like little reward? Apparently it's for your own good.

That's the line of economists when they explain what's called tournament theory. According to this argument, it's all about inspiring the ones at the bottom of the food chain. Maybe one day, they can become fat cats. More of an explanation in Forbes.

So it's not like the boss deserves it, it's just for the greater good. Work that one out when you read this LA Times piece on America's best paid CEOs. The top 500 executives received earned $6.4 billion in 2007, an average of $12.8 million apiece. Which makes the 15 per cent pay cut look academic. And a lot of it comes from exercising vested options granted in previous years.

Read it and weep.



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Tags: executive  pay  bosses  tournament  theory  2007  tournament+theory  paid+much 
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