CEO Compensation

Sorry back to policitics/world issues. I've stated previously that I completely understand the outcry over CEO compensation, but am dead set against any kind of Government limits. Here is a perspective that kind of gets to the why:

I picked the median company on the most recent Fortune 500 (i.e., number 250), Smith International. It has about $11 billion in sales and $1.6 billion in operating income. A 1% swing in $1.6 billion is $16 million. As context the median Fortune 500 CEO recently had total annual comp of about $6 million. So as a shareholder of Smith International going into the market to hire a CEO, the question I would ask myself if presented with the choice of paying $6 million per year or, say, doubling this to $12 million per year, is not "Will the CEO I get for $12 million fundamentally transform my business?" or whatever; instead, I'd rationally ask myself, "Can the $12 million
dollar CEO drive about 0.6% more operating profit than the person I would hire at $6 million?".

At the heart of is a profit-based calculation, and business exist to make profit. Intervention by the Government can be counter-productive so any intervention should be focused on (and we really need this) ensuring that there is fairness and transparency and not on setting some arbitrary salary cap. Using the current banking crisis as an example, if we set a cap for bankers receiving federal bailout money, no qualified person would ever take the job when they could make 10X that amount being CEO of a company in some other industry.