…in the US and UK. So why did executive pay start taking off in the 1980s in these two countries? Well something else happened at the same time: tax rates on top incomes were also substantially reduced. Why does reducing the tax rate on top incomes lead to a rise in those incomes pre tax? With lower tax rates, the CEO has a much greater incentive to put lots of effort into the bargaining process with the company.
The post is a bit wonkish, but it says that you get what you encourage: reducing top tax rates leads to larger subsequent pay awards and increased inequality of income.