I am an expert witness on executive compensation. I usually testify on the need to relate the executive’s performance to the company performance. I also point out that indefensible compensation results in poor top management relations and costly mistakes.
The reason is straightforward. The business market in the U.S. was the first to develop: we have a marketplace for businesses. By the mid 1960’s corporations in the U.S. were buying and selling companies. Today there are over 200,000 corporate sales a year in the U.S.; over half of all such deals in the world.
Over time, the buyers and sellers of corporations began to detect the fact that some CEO’s could make a newly bought company more successful while others couldn’t. It was the mobility of corporation ownership and management that made the importance of CEO competence visible.
So, over decades corporate boards began to realize the financial value of an effective CEO and top management team. Now, if they can detect those skills they are willing to pay for them.
The market is not perfect because the right connection between a CEO and a company and an industry are not always evident. Even worse, some companies, like regulated utilities, run the same way with good and poor management.
Germany probably has many companies with highly paid executives but we won’t know about it because the biggest and best companies are family owned.