Th is theory has been suggested to explain very high rewards for corporate executives with exceptional performance (Gabaix and Landier 2005). It can be applied to corporate executives at two levels – comparing salaries between CEOs of diff erent fi rms, and between the salary of CEO and other employees within a fi rm. Considered at the level of comparing CEOs between fi rms, if exceptional CEOs can generate exceptional performance for their fi rm, this theory would predict and justify a large range of CEO salaries, ranging from very low for poor to average execu- tives, to very.
