We review the scholarly literature and report that there exists no convincing link between CEO compensation on the one hand and either CEO performance or company performance on the other. We report further that neither market processes nor a lottery-like process account for the systematic difference between the remunerations of CEOs in the US and in other industrialized countries. Based on the observation that CEO mega-compensations are not taxed out of existence although they seem to violate common social norms of equity, we speculate that such compensations must serve a mythical social function. We propose that, baffled by the non-hierarchical nature of our economic system, Americans use high CEO compensation as evidence that someone is in charge. Finally, we argue that the current very high levels of CEO compensation may be counterproductive because they protect CEOs from the material consequences of their bad performance.
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