Are Very High Salaries Necessary for Achieving Economic Efficiency

Abstract An average worker in some US companies needs to work more than a year to earn his/her CEO's daily wage. We posit that the level of effort any individual can invest is bounded. Therefore, we cast doubt on the well-accepted economic notion that extremely high salaries are necessary because they ensure economic efficiency. Considering the notion of bounded effort may enrich the public discussion about the need for extreme wage levels that to date has overlooked the limited power of economic incentives.