Overpaid Bosses? It’s Rational!
Why are higher ups so grossly overpaid? Pretty much everyone agrees that they are (even the higher ups feel the even more higher ups are overpaid!); but why are things that way? Tim Harford analyzed just that question in his book, The Logic of Life . His answer is both interesting and depressing. The higher up you go, luck plays an increasingly important role in the outcome of your work. The General Manager may allocate funds for a new product: whether or not it succeeds is a function of so many uncontrollable variables. Like a recession. Or the best brains quitting halfway into the project. Or a new game changer launched by a competitor. You get the idea. As luck’s role increases, the career risk for the guy higher up increases. When Microsoft’s tablets bombed, the engineers who worked on it will easily get other jobs. But the CEO (is rumoured to have) lost his job (it cost $900 million). The CEO’s job may be an extreme example, but the principle applies for middle and upper...