5 Signs America’s Super-Rich Are Going Off the Deep End

[1StrongBlackMan]

27. From the OpEd linked in the #2 point ...

Critics sometimes suggest that this high pay reflects the failure of corporate boards to do their job. Rather than representing shareholders, this argument goes, those boards are too cozy with the chief executives and pay them more than they are really worth.

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 this supposed principal-agent problem between shareholders and boards, and yet these closely held firms also pay their chief executives similarly high compensation. In light of this, the most natural explanation of high C.E.O. pay is that the value of a good C.E.O. is extraordinarily high.

This is about the most simple-minded excuse that I've come across from a supposed academic. The Hedge-fund example actually proves the "too cozy" point, that Mankiw is attempting to explain away. Here's a hint, Mankiw: The problem with Executive compensation is the people making the pay decisions are making the decisions for/about themselves; whether it's a hedge-fund, paying themselves directly, or a corporate Compensation Committee that develop the pay scheme for executives that set on their own compensation committees (IOWs, "you take care of me and I'll take care of you).

Mankiw should be embarrassed to make such a facile argument.