Why are CEO compensations so distorted? Back-room glad-handing alone isn't enough to explain the phenomenon, because board members usually have a financial stake to protect themselves. Clearly they don't think they are wasting their money. What do they think they are buying with it?

I have a theory about that.

We know that appearances matter; they affect valuation. We also know that in an exhuberant market, valuation trumps dividends when it comes to stock owners. They're not worrying about a steady 5% return on investment. They're interested in the Big Cash-Out when stocks have gone from 15 bucks a share to 350. Hence there is an appetite in the market for feel-good CEOs. CEOs who are adept at painting a smiley on results. CEOs who are clever enough to hide risks off the books. CEOs who are not managers, they're manipulators.

Manipulators are cheesy, immoral, smart, ruthless risk-takers. Some of them, through pure statistical chance if nothing else, will have a track record of successful risk-taking. Those CEOs become the sought-after darlings, the object of a CEO-compensation bidding war, on the belief that if they succeeded in the past, they must know how to succeed again.

There's one other thing to consider. In an unregulated market, the trend is towards monopoly power. A monopoly is the holy grail of capitalism; if you can establish one, or at least gain enough throw-weight in a market to establish power over pricing, it's a license to print money. Hence anyone who is sharp as a tack on acquisitions and mergers, in an environment of laissez-faire government regulation has immense appeal - even if the short-term impact on profit and stock price is negative.

Surely nobody has missed the fact that since Reagan, government has tended to keep its gigantic mitts off of consolidations? We've seen this trend in banking, radio and TV ownership, movie studios, the telecommunications industry, oil companies, drug companies, retail, almost everywhere. The deal-makers - the ones with the savvy to value prospective acquisitions correctly, the ones who can make a property look more appealing than it really is, the ones who cook up creative ways to finance deals - are attractive CEO candidates.

Those CEOs raking in hundreds of millions in compensation are invariably those who score highest in both image-making and deal-making. A CEO with a positive track record in both can name his price, and it will be paid. The fact that both image-making and deal-making are risky, and that past success might not always lead to future success where risks are concerned, is lost in greed's distorting lens.

Only a relatively small number of CEOs play the risk game and manage to look good doing it. But their stratospheric compensation exerts a positive pressure on compensations for the rest of industry - just like in the NBA, where even the lowliest performer is a millionaire, because he suits up next to superstars and passes them the ball.

Let me summarize my theory: deregulation and a hands-off approach to government oversight of risky, deceptive and even fraudulent behavior, plus a feeding frenzy of market consolidations, is the driving cause of sky-high CEO compensation. No doubt taxation policies and other economic forces are in play, but those are the root causes.

Urgelt is correct with these clarifications:

1) The pay must be sufficiently high precisely to offset the incentives associated with CEOs to turn on the firm itself and cause irreversible harm - not just the result of a bad bet.

In other words, some executives are like the very best of crooks and con artists, but manage to stay just this side of the law when the pay is high enough. These are not the type of people to end up with in a lifeboat.

2) Claims that high CEO pay is necessary due to competitive pressure are bogus. There's no shortage of executives willing to do some very dirty work for very high pay.

If anything, there's a shortage of positions for an over-supply of contenders due to huge companies laden with market and political power who are willing to pay much to acquire and keep it.

In other words, the high pay is technically a surplus condition for which the market never clears, maintained by an inner circle of directors and upper management. The amount above the market clearing price could be considered as insurance paid to avoid harm from each other.

3) Reich's argument is essentially that executives control more than they do through genuine performance than masking and manipulation, thus the claim that they work on a knife-edge of risk that can cost much for bad decisions and must be paid much to avoid that risk.

But many that don't out perform the market still get high pay and vice versa, which refutes the link between performance and pay. Further, many are simply swamped by swings in GNP not related to what they do - something that economic forecasters generally cannot predict.

For example, all those bad housing loans were swept along with a rising tide for which everyone took credit, and the CEOs behind it were paid precisely to spur it on as far as it could be driven before burning out.

CEOs of the larger corporations are generally paid more to avoid competition than engage in it.