The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.



) -- A CEO makes more in a day than a worker makes in a year. In 2010, the average private sector worker received a 0.5% raise; the average large-company CEO had a 28.5% raise. The average annual compensation tallies in 2010 were $11.4 million vs. $33,800.

CEO-to-worker compensation has risen from 40:1 in 1980 to 337:1. When is this bubble going to burst?

That's wishful thinking. CEO compensation is now performance based and CEOs in 2010 presided over some healthy stock appreciation. They are ostensibly being rewarded for meeting their charter of maximizing shareholder value.

We really have to put aside the fact that 90% of

S&P 500

companies gave CEOs stocks or options within a year of Lehman Brothers' collapse. This appears to make the relationship between a CEO's performance and increasing share values for these newer allocations very tenuous.

It is no accident that CEO compensation has become performance based -- even if there seem to be a few loopholes. In 1993, CEOs could no longer be paid millions for showing up. Executive compensation over $1 million had to be performance based in order to be tax deductible. Since 1994 S&P 500 CEO compensation has been roughly 75% performance based: 50% equity, and 25% for bonuses. Better yet, in 2010, the performance component was 88%: 63% equity and 25% bonus.

An analysis by Earl Meyer and Partners executive compensation consultants noted that in 2010 "total compensation went up around 20% and total shareholder return went up 16%. So that seems to be roughly right."

Roughly right for some and very wrong for others. A review of 2010 data on 200 companies with revenues of $7 billion-plus, prepared by the

New York Times,

shows CEO pay increases at 39 companies were 200% or more of stock returns. In 24 cases, pay increases exceeded 500%. Eighteen companies ran in the red but CEOs took home big performance bonuses.

What were these tax-deductible performance bonuses for, if not profitability? It appears that the IRS rule defining performance-based compensation allows a truck to be driven through it, and that's exactly what the companies affected by this ruling have done. Let's just say that what is performance based is up to the board's discretion. We'll assume that they also know that they are committed to maximizing shareholder value.

It's not possible to rationalize the 2010 pay of



(VIA) - Get Report

CEO Philippe Dauman as maximizing shareholder value. With a 30% increase in share value, he did better than average. But Dauman's $84.5 million was up 152%. If it had been a 30% rise there would have been an extra $40 million or $3,697 for each of Viacom's 10,900 employees to spread around. Oh well. The board may have known that increasing an employee's base salary is a poor productivity motivator.

Dauman took home 10% of Viacom's net income. That's ridiculous. However it pales next to Mario Gabelli at


(GBL) - Get Report

. Gamco's revenues were 2% of Viacom's, but Gamco dished out $56.6 million in total compensation for Gabelli. How can a board justify CEO pay that is 82% of its net income as maximizing shareholder value?

Baby Doc Benefits

These types of pay plans conjure up images of Jean Claude "Baby Doc" Duvalier. Haiti's former president is ranked in the top 10 most corrupt leaders of all times for skimming 1.7% to 4.5% of GDP. Trivial next to Daumann or Gabelli, but their take is legal because its "performance based."

When CEOs are paid more than performance warrants, this can't be maximizing shareholder value. Let's take Dauman's extra $40 million. What if that money had instead gone to: hiring productivity-enhancing new employees or employee education or training; or bonuses for employees that increased output or developed new products or services? Wouldn't 109,900 employees motivated for the right reasons drive more shareholder value than one CEO who should already be plenty charged up with $44.5 million for a year's work?

Evaluating alternatives for motivating performance to maximize shareholder value, beyond CEO pay plans, takes work and it takes people that know something about motivation. That's just not how things are working today.

When the 2011 CEO compensation numbers come out in 2012, it will become instantly clear just how performance-based pay is playing out. On Sept. 30, 18 of the Dow 30 were in negative territory and eight had double-digit declines. That's a sign that scores of CEO pay will be tumbling, barring an unlikely end-of-year raging bull. If it doesn't tumble, then there will be evidence for a different type of CEO pay bubble -- a well-protected bubble.

If it turns out that the performance-based rationale for the jumbo packages has been a load of poppycock, there may be greater enthusiasm for the new SEC say-on-pay rule, which allows shareholders to tighten the IRS rules on what constitutes performance-based compensation. Thus far, shareholders have barely used their new clout to object to pay packages.

Critics have said that the results show that say on pay is a failure. Maybe, maybe not. Last year, share prices were heading in the right direction which makes shareholders complacent. This year, they should be cranky and more inclined to exercise their voices and votes.

When reviewing pay plans, shareholders should not approve performance-based compensation that has a tenuous relationship to maximizing shareholder value. And in addition to the often rigged peer analysis, they are presented to justify pay, they need to ask for an analysis of alternatives for maximizing shareholder value, including motivating everyone -- not just the CEO.

If CEO pay proves to be in a protective bubble and shareholders don't exercise their new power to influence shareholder returns, we'll know that government regulators will have failed a second time to tie CEO compensation to performance. At least this time the shareholders can't blame just the government.