Favoritism, cronyism or more like it would actually be described by the people who do it, a preference for trusted associates you've worked with in the past over strangers to run your stuff for you isn't a violation of your "market freedom" but rather an expression of a set of preferences that make all your choices incommensurable. P.S. it is not in the interest of investors for one employee to make way more money than normal it's just that nobody knows how to avoid it when that employee is the center of decision-making. The kids of yesterday's owner-operators have an entirely different set of preferences from their parents due to being real, "classical" capitalists... Which makes the focus on CEOs kind of ironic! Technically they're workers who escaped the cruelty of a liquid market.
> it is not in the interest of investors for one employee to make way more money than normal it's just that nobody knows how to avoid it when that employee is the center of decision-making
See "A Principled Approach to Executive Pay", Chapter 1.F in The Essays of Warren Buffet, arranged by Cunningham.
The issue I take with your line of reasoning is that executive compensation is often at odds with investor interests in more ways than just its amount. Buffet describes "heads I win, tails you lose" executive compensation plans in an essay from the 80s/90s. He describes how they do things at Berkshire Hathaway - they're doing very well and I doubt have any issue recruiting good executives.
Despite this, and decades later, we see terrible compensation plans being approved by boards. We see executives exiting failed businesses with enormous paychecks. We see boards offering those same executives new management positions with terrible (for investors) compensation plans. What gives?
It certainly looks like cronyism to me, but maybe I ought to be applying Hanlon's Razor.
Cronyism isn't an exception to microeconomics, it's a lesser-known example of a consumer preference. In this case the board has a... preference... for cronies. :-)
Employees at the bottom of the pyramid can make bullshit excuses too, but it is a privilege of the upper layers to have no one in a position to call them out.
