Paying a Premium: The Wall Street Journal seeks to defend Robert Nardelli’s $210 million severance from Home Depot by pointing out that most of the money he received in exchange for his departure wasn’t severance money at all, since it was guaranteed in the contract he signed when he joined the company—a distinction without any appreciable difference.

The Journal’s broader objective is to defend the extraordinary amounts paid to CEOs, which it does by claiming: “Top executive talent is hard to find, and boards are willing to pay a premium to get it. Their hiring decisions don't always work out—whose do?—but they'll pay a lot to reduce that risk.”

Spend a moment thinking about that and the argument boils down to this: CEOs are paid so much because they’re expensive.

What the Journal doesn’t claim is that CEOs who cost a lot are better than CEOs that cost only a fraction as much. It doesn’t claim that because it can’t. It can’t, because there’s absolutely no evidence to suggest it’s true.

The reality is that no one knows how much a good CEO is worth: it’s impossible to isolate the impact of the CEO from other factors—the quality of the management team, changes in the competitive landscape, global economic conditions—that affect corporate performance. It’s also pretty much impossible to predict whether a CEO who appeared to perform well in one job (perhaps because of some innate skill, perhaps because he was in the right place at the right time) will perform well in another.

Boards of directors are spending massive amounts of money based on nothing more than guesswork. It’s not even particularly educated guesswork. Top executive talent, as the Journal says, is hard to find. It’s even harder to identify with any certainty. So perhaps companies should avoid spending hundreds of millions of dollars until they know exactly what they’ve bought—any CEO confident of his own ability ought to be happy to accept a genuine pay-for-performance arrangement.