Simple arithmetic coupled with a lack of understanding of basic statistical concepts is to blame for much of the increase in CEO pay. I recently received the annual information package from a major corporation that was searching for a new CEO, which said that the CEO's compensation was set at the 75th percentile of the pay distribution of CEOs of other comparable companies. The 50th percentile is, by definition, average. If every corporation tries to pay its CEO more than average, the average will rise.

I would suggest that compensation committees should start looking at the 25th percentile; if that practice becomes widespread, it will change the upward pressure on CEO pay to downward pressure.