read an interesting argument in the armchair economist which tries to explain why the top ceos (even those in arguably failing companies) take home very high salaries and even if they are sacked are given very attractive severance packages. the argument is that most shareholders (at least the bigger players) have diversified stock holdings and the failure of one company doesn't affect them seriously. however they stand to benefit significantly if a particular risky investment pays off with huge returns. thus they have very strong incentives to encourage ceos to take on high-risk high-reward projects and the high salaries are essentially a buffer mechanism to assuage any fears the ceos may have of massive financial distress in the event of the project failing to yield the expected return.
couldn't help but imagine the parallels with the academic tenure system. faculty are evaluated after the tenure period and given academic tenure, essentially giving the guarantee the position for the entire lifetime even if they are absolutely unproductive. on one hand the system seems flawed, there is no real penalty for senior professors to become very unproductive. on the other hand the above economic argument would suggest that universities (the investors or shareholders) have massively diversified assets -- the non productivity of one faculty member does not devalue the universities reputation. but if a high risk high reward project succeeds bringing in huge visibility (and of course funding) the university stands to gain a lot -- tenure is essentially the buffer (similar to the high salary) to encourage senior professors to take on riskier projects (of course no one cares about graduate students, they are a low investment and low return of investment since they will graduate and go elsewhere!)
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