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The Backward Bending Supply Curve and CEO Pay

Classical economic theory teaches that money (or other forms of compensation) is a motivator. That is, the more money you pay someone, the harder  (and better) they'll work. That's the arguments that CEOs make for higher pay. The supply curve (of labor) in this case, slopes diagonally, southwest to northeast.

A variant of this theory says that people have target standards of living, and will work as hard as they need to achieve this standard of living. Meaning that people will work longer and harder if you REDUCE their pay rate, forcing them to exert more effort to earn their target pay. This is called a backward bending supply curve.

en.wikipedia.org/wiki/Backward_bending_s...

Which of these economic theories seem to apply to CEOs? Apparently it is the latter. Because that's the only one that explains the recent combination of lax corporate governance AND obscene pay.

Basically, CEOs are SO well paid, that they have every incentive to "take it easy" and enjoy their high pay. If shareholders somehow detected their slackness, and cut their pay, they wouldn't really mind. Because they are paying themselves more than they need to, lower pay would only mean that they would work harder to make up the difference.

The really good CEOs, work because they like to. Above a certain minimum, they don't need to be "incentivized" to work hard. Bill Gates and Warren Buffett are classic examples, and they pay themselves "only" six figure salaries. They do "make out" on the stock, but only because the companies are doing well.

But one way or another, most the others would earn as much as they wanted to under the present system.