Obviously, yes. (1) There is a principal-agent problem where the principals (the shareholders) abdicate responsibility for setting salaries to the agent (the Board of Directors), many of whom often have personal relationship with the executives they oversee. Shareholders obviously can see the salaries and, in theory, object, but that's not really going to happen. A Board with a significant ownership stake might get around the problem. (2) There is a wealth redistribution problem with the accounting around stock options. Boards could give them away for free, essentially, without them affecting the financials until cashed in. And, at that point, the options steal wealth from the shareholders, not the company treasury. Besides, since it is deferred compensation, by the time it comes up the CEO is leaving and many of the Board members may be gone too. So, you should fully expect a CEO of a publicly traded company to be paid more than he is worth. And, since these systemic flaws push the price in the market up, the price will also go up for those companies that do not suffer from these two problems.
No. Aside from the small pool of qualified candidates, CEO's also have very low shelf life. Chuck Prince was hired in 2003. Four years later he's kicked out the door. And Citi is a pretty big company. He actually fared better than most CEO's, most of whom don't make it past the two year mark. And it is difficult to get a job after being fired as a CEO, most just retire. With that in mind, if not for high pays, once I've reached the cusp, there is no incentive for me to become a CEO.
That is not really true. There is a reason they report a diluted EPS. FASB SFAS 148 also (finally) fixed that problem. The options would be priced into the price of the stock, although you could argue the accuracy of forward looking measures.
