The determination of the rigth level of monitoring is not easy

The Economist runs an article that highligths some of the trade-offs that have to be considered when investigating the role of CEOs. As it is obvious; monitoring of managers is on the outset beneficial.... but there are always externalities.

Becoming the boss used to be a cushy number. Pay without performance was the
rule. You got to pick your own board; not surprisingly, that board was unlikely
to kick you out. Things were a little different in Germany, but not too much.
Its two-tier board system was, in effect, the ultimate gentleman's club.

Now the boss’s pay is under growing public scrutiny. Reforms in corporate
governance mean that board members, though often still approved by the chief
executive, are less inclined to back him when the going gets tough. Indeed, as
the spotlight is increasingly turned on the performance of non-executive board
members, firing the chief executive, rather than giving him the backing he may
deserve, may nowadays strike many directors as the easiest way to deflect
criticism from themselves.

...

But there may be unforeseen consequences of this change. Bosses will feel under pressure to deliver dramatic improvements fast. More decisions may be taken in haste, only to be regretted later. More talented executives may decide that the short-term focus of the stock market and the media, combined with a trigger-happy mood in the boardroom, is an unacceptable risk. They may opt for the lower-profile but equally lucrative life of running a firm owned by private-equity investors. Those that do stay with public companies will want to be handsomely compensated for the extra risk. One result of the increased rate of chief executive turnover, The Economist confidently predicts, is that bosses’ pay in public companies will soar even higher