[skolor]

I haven't read that book, but isn't increased negotiating power for CEOs a more likely explanation than social embarrassment? If I've been chosen as the lead candidate for a CEO, it's a lot easier to justify a large salary if I can point at our competitors and say that I should be paid competitively to their CEOs.

[danieltillett]

It is more of a creeping process. Since no boards think their CEO is below average (if they did they would fire him/her). If their CEO is above average then the compensation they feel their CEO is due should also be above average. If everyone starts doing this then the average CEO salary will keep rising and rising. We end up in a world where all the CEO’s are above average and their salaries are in the stratosphere.

[dragonwriter]

The fact that board members are also themselves either executives in the same or other firms, or likely to be employed as such in the future, means that board members also have a self-interest in the trend of rising executive salaries.

[danieltillett]

Well there is this effect as well, but the "above average CEO, above average pay” is much easier to defend at the annual stockholders meeting.