At all levels, there are people who are paid significantly less than what their work is worth, generally either because they are under-recognized (and don’t have a good way to prove how good they really are) or because they do not push all that hard for higher pay. And at all levels, there are people who are paid significantly more than their work is worth – for example, because they are so good at “selling themselves” that they make themselves and their work sound better than they really are, or because they steal credit for other people’s work or ideas, or because they have friends in high places, or maybe just because someone made a mistake in hiring or promoting them and doesn’t want to admit the mistake. Unfortunately, when those kinds of things happen with CEOs, the stakes are a lot higher.

I wish there were a way we could have a perfect system where CEOs really are paid what they are worth instead of just based on people’s guesses at what they are worth. But in a system where we don’t have perfect knowledge, best guesses are all that’s available, and sometimes those guesses are wrong.

Suppose you had to draw the name of Chrysler’s next CEO out of a hat. One hat contains random names of CEOs who are currently making about one million dollars a year. The other hat contains random names of CEOs who are currently making about five million dollars a year. Which hat would you choose to draw from?

If you really believe that there is no meaningful connection between CEOs’ salaries and how good they are, you would be just as happy drawing from the one-million-dollar hat as from the five-million-dollar hat. But personally, I’d view Chrysler’s odds as much better with a randomly chosen CEO who makes five million dollars a year. And considering how small a four million dollar difference in CEO pay is compared with Chrysler’s annual revenues, I’d rather risk wasting a little money paying a CEO more than I need to than take a greater risk of the company failing because the CEO isn’t up to the job.

Some executives are worth almost any salary (Walter P. Chrysler for example). Others are not. Lee Iaccoca’s performance seemed to vary inversely to his salary… and what kind of “middle pay” talent could you buy for the price of that one executive on top?

If you look around, you’ll quickly see little evidence of your ideal world where CEOs get the pay you deserve. Some of the best get the least and vice versa. My experience as a consultant jibes with Business Week’s annual analyses. The system does not work and boards often do not remove bad CEOs – or seem to wait forever. Nor do they ever seem to respond to poor performance with financial disincentives. In real life, they are interlinked and often irresponsible and unresponsive. Not always, but often enough to break the system.

And I don’t find the crazy salaries paid to certain celebrities to justify CEO salaries. You can use that to justify paying George W. Bush a $40 million bonus this year if you really want to, as one of the biggest celebrities in the world, but I find two separate arguments there. Perhaps, ideologically, there is a common assumption that certain individuals are irreplaceable. (Some feel that when it’s time to invent a light bulb, someone will do so, whether Edison is there or not. Others feel you need an Edison. My guess is there’s truth somewhere between the two views – you get a light bulb and the needed electrical infrastructure a heckuva lot faster with an Edison, but without one, you will still get there sooner or later.)

EIther way, this is my last comment, so say what you like and it won’t be countered by me. I have to move on.