Are They Worthy? Despite the shocking extremes, new studies claim CEO pay matches performance, and increasingly so.

Byline: Rana Foroohar (With Barrett Sheridan in New York)

Ogling executive pay is the spectator sport of business. The catcalls from the stands have gotten louder as new studies throw out eye-popping statistics about how rich CEOs are getting, while the rest of us worry about keeping our jobs out of China. One such: the U.S.-based Institute for Policy Studies notes that CEOs made 142 times more than the average worker in 1994--and 431 times more in 2004.

No wonder executives like Home Depot's Bob Nardelli, UnitedHealth's William McGuire, Pfizer's outgoing Hank McKinnell and others who have total compensation packages stretching into the tens and even hundreds of millions are taking heat. Of course, they can always point the finger at ExxonMobil's recently retired CEO Lee Raymond, who'll cruise into his truly golden years some $405 million richer.

All the bad press has put activists, politicians and regulators into overdrive. British and European companies have had to beef up their disclosure of executives' long-term pay packages, and some shareholder groups are calling for even better reporting standards. The SEC is pushing new pay-disclosure laws, a subject that has drawn more attention than any other in the agency's 72-year history (more than 20,000 formal comments have been registered so far). Democratic Congressman Barney Frank is proposing a Protection Against Executive Compensation Abuse Act, which would limit tax deductions for companies that pay executives more than 25 times the lowest paid worker. But even as the drumbeat for reform grows louder, some new research is questioning just how out of proportion these megapackages really are--and whether more regulation is the best way to scale them down.

First, there's the issue of metrics. In recent testimony before Congress, compensation consultant Frederic Cook (who advises some of the multinationals under fire) argued that surveys using average pay are not only skewed by the extreme highs like Raymond, but are in fact designed "to produce high CEO pay ratios for maximum propaganda value." Perhaps. But even using his suggested median salaries, the ratio of CEO to worker pay in 2004 would be 187 to one.

A more effectively contrarian argument comes from a pair of, surprise, French academics in America. Xavier Gabaix of MIT and Augustin Landier of NYU say that since 1980 the pay of CEOs has risen in lock step with the market capitalization of their companies: both are up 500 percent. Using this logic, CEOs like Chevron's David O'Reilly (who collected some $25 million in 2005) aren't overpaid, because they are running ever bigger, riskier firms, making decisions that touch more and more people. "The supply of CEOs for large companies is capped, because they need to have experience at other large companies," says Landier. "Meanwhile, the supply of skilled workers around the world has increased." No amount of regulation or disclosure, say the pair, will change the fundamental trend of bigger paychecks at bigger companies. "It's very much like pay for top actors or sports stars," says Gabaix. "If you have the talent to be among the ...