I have been an expert witness for more than a decade against high levels of executive compensation for the top ranks of public utility corporations.
I have generally relied on two arguments. First, the high levels of executive compensation are translated into high wages for employees. All of which costs the ratepayers in the form of higher utility rates.
The second argument I have used is that public utility corporations are de facto public bureaucracies and should not receive pay any higher than comparable government compensation. So that an executive at Pacific Gas & Electric should not receive more than $350,000, a wage paid to governors and US presidents. But the CEO of Pacific Gas & Electric is paid closer to $10 million.
I personally have never argued that high executive compensation has any inherent flaw in it. Fortunately, because the evidence in support of high executive compensation as a reasonable incentive is strong and testable.
Here is an example where economic research has been carried out. The findings were that in former public corporations that have been taken over by investment companies, the CEOs were often given higher compensation than before the takeover. Suggesting that when high stockholder gains are the goal that high CEO compensation can be justified .
Greg Mankiw reports that “the argument (is often made that)... boards are too cozy with the CEOs and pay them more than they are worth to their organizations. Yet this argument fails to explain the behavior of closely-held corporations. A private equity group with a controlling interest in a firm does not face the alleged principal-agent problem between shareholders and boards, and yet these closely-held firms also pay their CEOs handsomely. Indeed, Kaplan (2012) reports that over the past three decades, executive pay in closely-held firms has outpaced that in public companies. Conqvist and Fahlenbrach (2012) find that when public companies go private, the CEOs tend to get paid more rather than less in both base salaries and bonuses. In light of these facts, the most natural explanation of high CEO pay is that the value of a good CEO is extraordinarily high (a conclusion that, incidentally, is consistent with the model of CEO pay proposed by Gabaix and Landier, 2008).”
That is very strong evidence in my opinion that high executive compensation is an effective reward for productivity.