That theory rests on the assumption that your salary is based on how good you are at your job. But if that were the case then corporate life wouldn't be full of people complaining "my boss is an idiot and yet (s)he makes ten times what I do".

I'll argue that money goes to those who are best at internal politics, with perhaps a moderate correlation with work performance.

This is the lump of labour fallacy, right? Companies don't actually have to have fixed labour budgets; indeed ideally firms should be always willing to hire/retain a worker at a salary less than that workers marginal revenue product, as this is profit maximising.

How well correlated are the highest paid employees to the best employees, though? My guess would be that salary correlates strongly with self-belief, charisma, and negotiation skills

It may mean paying less to the best negotiators, but not the best performers.

> A company has a fixed amount of money it can spend on wages

Absolutely not. It has a maximum, sure, and a minimum it can get away with, but there's always a range in between them.

> Reducing wage inequality means paying less to the best employees

Bold assumption that the best are paid the most.

Imagining this problem is just a sign that your company can't do pay grades or job titles properly. Or work out the concept called a "bonus".

The thing is, if you're rewarding performance through _process_ it ends up being more public and you have to have a written justification for it. Not just favouritism.

> A company has a fixed amount of money it can spend on wages.

When they hire and amazing 100x employee they have higher sales, revenues and profits with which to pay employees.