That's not entirely true. The salary cap is because if teams paid the fair market value, the teams with a larger budget would be able to run away with it like the Yankees did in baseball (with over twice as many World Series titles as the next best). It keeps the league artificially competitive.
Keeping the business world artificially competitive is an interesting idea, and not as bad as I initially thought.
Technically, in baseball, the lower market teams get paid out of the luxury tax. Sometimes those payments exceed their team salary. The competitive argument sounds nice, but is more for the owners than competitiveness.
"Keeping the business world artificially competitive is an interesting idea, and not as bad as I initially thought."
I have no understanding of why it is a good idea or how, given CEO's and businesses are not teams competing for a trophy how it is even relatable.
They are teams competing for trophies, though; the trophy is your money/market share.
But beyond that, artificial competition could be a good thing. The large companies have a lot of advantages over the smaller companies, like economies of scale and name recognition, but they also have an incentive to stifle innovation (either directly or indirectly through the Innovator's Dilemma) and erect barriers to entry. Allowing smaller companies to "steal" CEOs helps offset some of those advantages. Even if they aren't well suited to that role, the name recognition alone can be an advantage (just look at SolarCity).
But I keep going back and forth on this. Set the salary cap too high, and the small companies can't steal the CEO away. Too low and it doesn't properly reward them for the difficulties of managing 200k+ person companies. A proper middle ground, if it exists, would be hard to find and need constant adjustments.
The only ones would could regulate CEO salaries in this manner is government and given the job they do with taxi cab medallions, I do not believe they are competent to do anything but screw it up.
Keeping the business world artificially competitive is an interesting idea, and not as bad as I initially thought.