WHY CEOs ARE GETTING HUGE RAISES

1 They’re paid heavily in stock.

Unlike most workers, chief executives receive much of their compensation in the form of company stock – a lot of it. The theory behind compensating CEOs this way is that it aligns the interests of senior management with those of shareholders, which would seem beneficial for a company.

Yet accounting scandals of the early 2000s showed that some executives gamed the system, ultimately at shareholder expense. Executives at firms such as Tyco and Enron tinkered with the books to boost corporate incomes, share prices and the fortunes of insiders and senior managers.

Still, the bonanza continues. The average value of stock awarded to CEOs surged 17 percent last year to $4.5 million, the largest increase ever recorded by the AP.

2 Peer pressure.

Robert Solow, a Nobel Prize-winning economist, recently observed that CEOs live in “Lake Wobegon,” that fabled town created by radio show host Garrison Keillor where, it is said, “all the children are above average.” Solow didn’t mean it as a compliment.

Corporate boards often set CEO pay based on what the leaders of other companies make. No board wants an “average” CEO. So boards tend to want to pay their own CEO more than rival CEOs who are chosen for benchmarking compensation packages.

3 The superstar effect.

Companies often portray their CEOs as the business equivalents of LeBron James or Peyton Manning – athletes who command (and deserve) enormous pay for their performance and ability to draw crowds.

The era of digital communication and private jets has given leading athletes, entertainers and business people the global reach to generate outsized profits.

The late University of Chicago economist Sherwin Rosen theorized that this phenomenon would concentrate more income with the top players.

4 Friendly boards of directors.

Some board members defer to a CEO’s judgment on what his or her own compensation should be. There’s a good reason: Many boards are composed of current and former CEOs at other companies. And in some cases, board members are essentially hand-picked or at least vetted by the CEO.

5 Stricter scrutiny.

Even companies with vigilant boards and an emphasis on objectively assessing CEO performance might shower their chief executives with money. When a CEO faces more scrutiny and a greater chance of dismissal, the companies often raise pay to compensate for the risk of job loss, according to a 2005 article by Benjamin Hermalin, a professor at the University of California, Berkeley.