A comment to my previous post correctly points out that the income distribution is approximately log-normal. What this means is that while income itself is not normally distributed, the logarithm of income is. The log-normal distribution has a pretty fat tail for high incomes. A variable will be log-normal if it is the product of a lot of random variables, since the log of a product is a sum. It has been argued for many years that achievement should be log-normal because it involves the product of many independent events. This is why a good programmer can be hundreds of times better than a mediocre one. I even gave a version of this argument here. Hence, small differences in innate ability can lead to potentially large differences in outcome. However, despite the fact that income may deviate from log-normality in some cases and in particular between sectors of the economy (e.g. finance vs. philosophy), there is still a question of whether the compensation scheme needs to follow log-normal even if productivity does. After all, if small differences in innate ability are magnified to such a large extent, one could argue that income should be pegged to the log of productivity.