Costco CEO James Sinegal certainly thinks so:
“I think that most of the people running companies today are motivated and pay is a small portion of the motivation,” Mr. Sinegal said. So why so much pressure for ever higher pay?
“Because everyone else is getting it,” he said. “It is as simple as that. If somehow a proclamation were made that C.E.O.'s could only make a maximum of $300,000 a year, you would not have any shortage of very qualified men and women seeking the jobs.”
If all the other CEOs are making $10 million, and you're making $5 million, it's not that your salary is insufficient, but that the status it confers is insufficient. If your income is supposed to speak to your value, then it can, at a point, cease being about the money and begin being about what the money says. Hence skyrocketing CEO pay: You can't go to a new job, even a better new job, if the specifics of the deal (your salary and options) will harm your status. So CEO's constantly need better deals in order to retain their relative position, which means all the other CEOs need better deals to retain their relative position, and so on, until the pay is utterly obscene and, in fact, completely beside the point.
Update: In comments, Tyro adds three important points:
Note that many corporations also probably regard their own status as being insufficient if they are paying their CEO less. Who wants to be the one to say, "yes, our CEO is worth less than the average for the industry" ?
Also, in an environment full of hostile takeovers and cut-throat competition, ever-escalating salaries for CEOs are regarded as signals of corporate strength. Paying them less then their competitors could be regarded as an outward sign of weakness.
If CEOs were paid more based on their managerial added value, we'd see salaries for executive vice presidents spiraling upwards at the same rate, but we don't. The only difference between the two is their public profile, and the public profile for CEOs is much higher than for the people directly under him.
I've not seen data for lower-level executives, but it would be interesting to examine how it tracks changes in CEO pay. As for the other points, Tyro is right on: CEO pay is not merely positional among CEOs, but among firms.
