James Kwak (at Baseline Scenario) talks about the link between CEO pay and business performance here. He cites results from a paper by Cazier and McInnis that "people from successful companies don’t deserve the pay premium because the higher the premium they are able to command, the less well they are likely to do." So far so good.
Then James launched into the following:
This should not be too surprising. The more of a superstar someone is at Company A, the more likely the board of Company B is to overlook all the things that make her a bad fit for Company B—like not having experience in the industry, or with the new company’s customer base, or having led Company A through a different phase of its lifecycle than Company B, or not having the skills that Company B needs at that point in time, or any number of other things. The more reasons for concern that Board B overlooks, the more likely the new hire is to do badly. In the end, you get something vaguely like the Peter Principle: the more successful Company A is, the more market power its CEO has, and the more likely she is to be overpaid to be CEO of a company she is not qualified to lead.
This paragraph contains a dozen assertions that have no support from the Cazier-McInnis article. These may be interesting ideas but they are pure speculation on the part of James. The trouble with such ex-post explaining is the narrative fallacy that Nassim Taleb likes to talk about. If Cazier and McInnis were to discover that CEO pay is justified by future business performance, there would have been another dozen assertions one could come up with to "explain" the correlation.