Most of these organizational theories I've developed myself from observing how actual corporate hierarchies function and trying to put myself (and sometimes actually doing it!) in each of the different roles and think about how I would act with those incentives. I did have a good grounding of Drucker and other business books early in my career, and two blog series' that have influenced my thinking are a16z's "Ones and Twos" [1] and Ribbonfarm's "Gervais principle" [2].

For executive pay, the most crucial factor is the desire to align interests between shareholders and top executive management. The whole point of having someone else manage your company is so that you don't have to think about it; this only works when the CEO, on their own initiative, will take actions that benefit you. The natural inclination of most people (and certainly most people with enough EQ to lead others) is to be loyal to the people you work with; these are the folks you see day in and day out, and your power base besides. So boards need to pay enough to make the CEO loyal to their stock package rather than the people they work with, so that when it comes time to make tough decisions like layoffs or reorgs or exec departures, they prioritize the shareholders over the people they work with.

This is also why exec packages are weighted so heavily toward stock. Most CEOs don't actually make a huge salary; median cash compensation for a CEO is about $250K [3], less than a line manager at a FANG. Median total comp is $2M (and it goes up rapidly for bigger companies), so CEOs make ~90%+ of their comp in stock, again to align incentives with shareholders.

And it's why exec searches are so difficult, and why not just anyone can fill the role (which again serves to keep compensation high). The board is looking for someone whose natural personality, values, and worldview exemplifies what the company needs right now, so that they just naturally do what the board (and shareholders) want. After all, the whole point is that the board does not want to manage the CEO; that is why you have a CEO.

There are some secondary considerations as well, like:

1.) It's good for executives to be financially independent, because you don't want fear of being unable to put food on the table to cloud their judgment. Same reason that founder cash-outs exist. If the right move for a CEO is to eliminate their position and put themselves out of a job, they should do it - but they usually control information flow to the board, so it's not always clear that a board will be able to fire them if that's the case. This is not as important for a line worker since if the right move is to eliminate their position and put themselves out of a job, there's an executive somewhere to lay them off.

2.) There's often a risk-compensation premium in an exec's demands, because you get thrown out of a job oftentimes because of things entirely beyond your control, and it can take a long time to find an equivalent exec position (very few execs get hired, after all), and if you're in a big company your reputation might be shot after a few quarters of poor business performance. Same reason why execs are often offered garden leave to find their next position after being removed from their exec role (among others like preventing theft of trade secrets and avoiding public spats between parties). So if you're smart and aren't already financially independent, you'll negotiate a package to make yourself financially independent once your stocks vest.

3.) Execs very often get their demands met, because of the earlier point about exec searches being very difficult and boards looking for the unicorn who naturally does what the organization needs. Once you find a suitable candidate, you don't want to fail to get them because you didn't offer enough, so boards tend to err on the side of paying too much rather than too little.

Another thing to note is that execs may seem overpaid relative to labor, but they are not overpaid relative to owners. A top-notch hired CEO like Andy Grove got about 1-1.5% of Intel as his compensation; meanwhile, Bob Noyce and Gordon Moore got double-digit percentages, for doing a lot less work. Sundar Pichai gets $226M/year, but relative to Alphabet's market cap, this is only 0.01%. Meanwhile, Larry Page and Sergey Brin each own about 10%. PG&E's CEO makes about $17M/year, but this is only 0.03% of the company's market cap.

There's a whole other essay to write about why owners might prefer to pay a CEO more to cut worker's wages vs. just pay the workers more, but it can basically be summed up as "there's one CEO and tens of thousands of workers, so any money you pay the CEO is dwarfed by any delta in compensation changes to the average worker. Get the CEO to cut wages and he will have saved many multiples his comp package."

[1] https://a16z.com/ones-and-twos/

[2] https://www.ribbonfarm.com/2009/10/07/the-gervais-principle-...

[3] https://chiefexecutive.net/wp-content/uploads/2014/08/CEO_Co...