It works because it exploits several flaws in our society and in human psychology like greed, wealth inequality, conformity of the masses to cultural norms, fear of missing out/of being left out, and the crabs in the bucket mentality, which leads to a rat race to the bottom form which it's difficult to check yourself out as an individual if the majority does it.

This isn't something big bad corporations have created, it s just something that has existed for hundreds of years, they're just exploiting. The same mechanism and behaviors were in place during the communist rule in my home country 35+ years ago, when people were fighting to climb up the party ranks, because that's what gave you the best QoL. Now it's climbing the corporate ranks.

Because it's cheaper to compensate one manager 10x average (and get the best candidate) than pay more to hire an entire team of more skilled ICs.

FAANG gets away with it because they amortize their engineering costs over an extremely customer base. Which also multiplies the value in output quality difference.

Most companies are not building EC2 or BigTable.

And so... it makes more sense to hire minimal cost engineers, then corral them with a single high-cost manager.

I don't think you get better managers by paying them more though, over some threshold. You'd probably just get more "competetive" managers in the meta game of becoming a manager. Like engineers at Google are not some elite just becouse they are paid more. Only athletics actually can be evaluated in an accurate enough manner I believe.

But it's likely a direct transfer from sales or retail orgs, where it's very much measurable and true.