“The sixfold increase in American CEO pay from 1980 to 2003 is almost wholly explained by the roughly sixfold increase in market capitalization of big U.S. companies over the same period. (Asset values have increased sixfold because both corporate earnings and the price-to-earnings ratio investors are willing to tolerate have increased by factors of 2.5.) The trend lines of market capitalization and executive payouts rose and dipped in near-perfect tandem.”

Xavier Gabaix and Augustin Landier, economics professors at New York University’s Stern School of Business, outlining that perhaps there is a reason why CEO’s earn large bonuses.

Hat tip: The Pelican Post.