Much more common is the practice of "benchmarking" executive compensation. There are any number of consulting firms out there that specialize in HR consulting. Virtually all of these groups perform salary surveys of one form or another. It is not atypical for companies to say that "We strive to maintain our executive compensation at or near the [75th] percentile level" or some such. The logic is that, if they don't pay competitive salaries they will not only not attract the best talent but, even worse, the talent that they do have will leave. You can argue whether or not the last option would really be good for the company or not.

In any case, at salary review time the executive compensation committee looks around and says something like "the mean salary for a CEO is $475 say and the median is $495, while the 75 percentile is $535. We'd better move our gut to $550." Of course this rachets up the various measures appearing in the survey next year and results in another round of raises. Kind of keeping up with the Joneses.