Is any chief executive officer worth $125 million a year?

That's the approximate amount that Ray Irani's compensation, including new stock option grants, impacted Occidental Petroleum Corp.'s balance sheet in 2005.

Critics of excessive compensation of which there are no shortage these days on Wall Street would suggest the answer is a self-evident no.

But considering that the nation's second-largest oil company reported $5.3 billion in net income last year, with shareholders seeing a 39 percent return maybe he is worth it, suggest some academics who track executive compensation.

"The critical element in my opinion is performance," said Wim Van Der Stede, assistant professor of accounting at USC's Leventhal School of Accounting. "If there is tremendous market value being created and the pay is being pegged to performance, then an executive's compensation can be seen as an incentive rather than an entitlement."

Of course, Irani is far from the only poster boy for handsome executive compensation. In Los Angeles alone, the Business Journal survey this year counts 11 executives who took home more than $20 million in aggregate pay, including cashed out stock options generous pay days by any standard.

But there may be reasons beyond the standard critics' line of compliant boards and weak-kneed compensation committees.

Consider that the six-fold increase in chief executive pay over the last 20 years is equivalent to a six-fold increase in the market capitalization of large U.S. companies, according to Xavier Gabaix, a Massachusetts Institute of Technology professor who co-authored a mathematical model-based study cited in a recent New York Times op-ed piece.

"By and large, this is a competitive market where companies are competing for the best executives, and they're willing to pay to recruit and retain the best," said Gabaix, noting that the scope of a chief executive's job has changed over time, with increased responsibilities and liabilities in part because of tighter corporate governance.

Top executives these days also are more highly prized for their general executive and leadership skills rather than specific industry knowledge, he said; and that creates more job options.

At the same time, compensation for top executives in certain industries can be higher than in others if there is a limited pool of experienced executives in that industry to draw from.

"One argument is that this is a free market and companies are entitled to compete for the best executives," said Nathan Bennett, dean of the Georgia Tech College of Management and an expert in organizational behavior. "The other view is that this a completely irrational contest to attract the rock star CEO. There a bit of truth in both points of view."

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