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One of the de facto laws of compensation in a bureaucracy is that nobody can get paid more than the guys at the top
Why is that? Is it because of tradition, or is there some concrete reason for it?
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The leader of a community stands as a reflection of the community. This isn't just about heads of state: every leader from tribal chiefs and village mayors up knows that when outsiders look at them as individuals, they are evaluating the community as a whole. Consider what it would say about the US if the President met with foreign dignitaries wearing a Men's Warehouse suit and shoes from Sketchers. Not that there's anything wrong with the Men's Warehouse or Sketchers, but those dignitaries would think "How badly off must the US be that this is the best their President can do?"
Nations, prefectures, states, parishes, municipalities, etc. pay their leaders well (and provide them with stately residences and mansions, limousines, pomp and circumstances, and other formal luxuries) because the community wants their head representative to be respected and to carry an imposing air of dignity, because that will reflect on the community as a whole. When the leader reflects a powerful, respectable, dignified community, that translates to trade and commerce, attracting new business, warding off threats, negotiating new deals, a general sense of prosperous security... Paying a leader well isn't generosity; it's in the community interest.
Of course, some leaders let it go to their heads and abuse the privilege, becoming more concerned with their own (personal) status and power than with the status and power of the community as a whole — e.g., Erdogan and his new presidential palace — but we shouldn't neglect the principle because of its too-frequent abuses.
This is not true, in a universal sense.
In general it's true that, in government as in other fields, the higher up you rise, the higher your salary is, but what's much more important is the field you're in, and it's relative value (to the state/country) and competitiveness.
If you look at US States, for example, you'll see that the Governor is almost never among the highest paid public employees.
In Alaska, the Governor makes $145,000/yr, less than half of the top 3 highest paid public employees: The Executive director of the Department of Revenue ($371k), a forensic psychiatrist for the Department of Corrections ($367k) and an investment officer for the Department of Revenue ($350k).
In California, the Governor makes $220,000/yr, less than the $342,974/yr that the Mayor of San Francisco makes. The Mayor, in turn, makes less than 9 other city employees such as chief investment officer for the San Francisco Employees' Retirement System ($527k). All these salaries, though, are dwarfed by the salaries of even assistant coaches for the UC football teams: Chip Kelly, the head coach, makes $3.5 million per year, the offensive coordinator makes $700k per season, the assistant head coach makes $500k, while the tight end coach makes $450k.
In Delaware, the highest paid public employee is the Thoroughbred Racing Commission doctor of veterinary medicine, at $477k, compared to $171k for the Governor.
I won't go through every state, but the common top earners are sports coaches, university presidents, employees at state/city pension and investment funds, and leaders of state university medical schools. The general theme is that they have specific skills that would grant them high salaries in the private sector.
Another exception is overtime eligible employees, like police officers, who can use large amounts of overtime to earn much higher salaries than their bosses. In Seattle, for example, the police chief makes $285k per year. Thanks to overtime, however, that doesn't even make it into the top-10 highest salaries in the department. In 2019, the top paid SPD employee was a Patrol Officer (not even a Sergeant or Lieutenant), who made $414,543
We want our government leaders, whether politicians or public servants, to be able to give peak performance in their roles. Good pay does not guarantee this, but it does help reduce many concerns:
Speculation aside, for the Netherlands we can answer this more directly. That's because the de facto law is also a de jure law. The "Wet Normering Topinkomens (WNT)", better known as The "Balkenende Norm" after the Prime Minister at the time, states that no civil servant can earn more than the Prime Minister.
The law was introduced in reaction to public outcry over excessive salaries paid to senior civil servants; the PM's salary was chosen as the norm because it was considered high, but still reasonable. It also means the norm is adjusted over time as the PM's salary changes.
The slightly sarcastic answer is that people at the top (not just in government) are paid the most because they are the ones who decide upon everyone's payment.
In politics, that is not entirely true given that it is often parliament that decides the government and head of state salaries. However, parliament and government are not distinct, either the same parties run in both (like the USA) or the government is made up of members of parliament anyway (most European countries).
For other organisations, such as an administration, a company or institute, salaries are typically decided by someone one or two levels above, and people have a tendency to give those below them a lower salary as well - those words (below and lower) are not a coincidence, that's how the human mind works (a great book: "Metaphors to live by"). I would go so far to say that it's simply an artefact of us considering higher positions to be - well, higher. If we see hierarchy as a pyramid, with upwards instead of, say, sideways, then maybe we would not have the mental picture that salaries also have to be higher.
The quote is about bureaucracy, while the original title referred to "government." I've edited the title to say government/bureaucracy, because these are not the same thing. The person at the top of the government would be someone like the president of the US or the governor of a state. The top of a bureaucracy consists of career civil servants.
The career civil servants at the top of a bureaucracy get paid the most simply because there is a defined system of pay grades for civil servants. I would imagine that the original reason for the defined pay grades was that it would reduce possibilities of corruption. You might be able to get a job as a postmaster because you were friends with a state legislator, but at least you couldn't trade on that connection to get paid more than normal.
I don't think it's necessarily true that people at the top of government are paid the most. Historically, in the US, state legislators were often expected to be part-time citizen-legislators, and in many cases they were paid nothing at all.
People will not take on more work and more responsibility unless they perceive some incentive to do so. Providing a straightforward monetary incentive helps to counteract other incentives people might have, like enjoying power for its own sake, or wanting more influence because it gives them access to bigger bribes.
Adding to the other answers, I think a chief reason is responsibility. If something goes wrong, it's not the army grunts who each carried out a part of the failing policy, but the top bureaucrat or government official whose head is on the chopping block. A higher pay remunerates this higher level of responsibility.
Of course, this is the theory. In practice, the higher-ups all too often evade their responsibility, while still cashing their check.
The other answers are well and good, but here's a more cynical anti-answer:
Higher ranks, no matter how vacuous or incompetent, are paid more the better to make it appear, by circular reasoning, as though they were necessarily worth more. This allows advocates to argue that bribery and corruption are reduced because the higher ranks are affluent, and that affluence selects, (these advocates claim), for a natural meritocracy of "the best and the brightest".
To the contrary:
Greed being boundless, higher pay might select for higher greed.
Vanity is also boundless, and pomp and status might select for pols with "little man complexes" who are addicted to pomp.
Corrupt sponsors of a politician may not be able to rely on bribery once their sponsored politician is affluent, but they can always depend on blackmail. Corrupt sponsors might prefer a relatively perverse or even criminal politician whom they can ruin in an instant with a photograph or film, and may therefore be relied on to faithfully and fearfully serve their agenda. It's useful to craft a virtuous even crusading public image for such a criminal politician, who should be made to seem like a living ideal of civic meritocracy.