I know it discourages work, because I know the amount of effort required to make $250k versus $500k. The languishing 37 hour work weeks, the 6 weeks of vacation you use whenever you wish, the 20% bonus that is auto-delivered for having a pulse, the 401k auto-match to your max income, etc. Then you go to the second camp, that $250k guy's manager. 80-100 hour work weeks. Forfeit your vacation every year and lose most of it, or get fired for stepping away from the company for 2 days. Every day you sign documents that have to be materially correct to avoid prosecution, yet your bonus is predicated on giving the firm the rosiest outlook possible to lenders, partners, and shareholders.
The first $250k is much easier than the second $250k, the third $250k is nearly impossible, and those that make a full $1m are 99% of the time owners.
So any highly skilled professional currently making say the ~$500k is already performing twice the work of the $250k subordinate while carrying a tremendous risk-premium. You know what happens when the effort, taxation, and risk of the higher paid position becomes too great? The w2 guy making $500k just quits corporate, becomes an LLC, makes $250k a year working half-ass the time comparatively, and via deductions and clever tax planning pays almost no taxes.
That's what the disincentives breed, but you'd never know this because you've never personally experienced what it takes to produce enough value to be compensated at those kinds of numbers.
