Lee A. Iacocca made enough money last year to buy a fleet of more than 1,500 Chrysler Le Barons, while his company lost market share to rival automakers and its profits fell 7 percent.

Put another way, a worker toiling at minimum wage for 40 hours a week for the past 2,000 years probably wouldn't have earned as much as the $38.43 million Iacocca collected in the past two years from salary, bonuses and exercised stock options, AFL-CIO economists have calculated.The example reflects what labor activists and some compensation consultants call an irrational and unfair system for rewarding America's corporate executives.

Defenders of the system say it's dictated by the law of supply and demand, as well as the enormous stress chief executives endure in an increasingly competitive world.

Critics contend the system allows both the best and worst talent to lock in millions of dollars in compensation for years into the future. They say it's also a system that doesn't necessarily reward risk or penalize failure.

For example, oil giant Texaco Inc., reeling from bankruptcy proceedings and a record $4.4 billion loss last year that caused it to suspend three dividend payments, awarded a 14 percent pay raise to James W. Kinnear, who replaced John McKinley as chief executive at the end of 1986. That boosted Kinnear's salary to nearly $723,000.

Critics say that American executives receive the highest pay of any industrialized democracy and that their compensation has grown much faster than inflation, corporate profits and worker wages.

This growth persists despite economic uncertainties raised by the October stock market crash and drastic corporate restructurings that have reshaped and trimmed U.S. businesses over the past several years.

"I'm getting very concerned about the size of these pay packages," said Graef S. Crystal, a compensation expert and professor who teaches courses on management reward systems at the University of California at Berkeley graduate business school. "What compensation committees and consultants are designing is the most dreamboat security ever thought of."

According to an analysis by Towers Perrin Forster & Crosby, a leading management consulting firm, the median total cash compensation salary plus annual bonus for chief executives in the nation's largest industrial companies passed the $1 million mark for the first time last year.

Just among the 30 companies that comprise the Dow Jones industrial average, which tumbled 22.6 percent in value on Black Monday Oct. 19, chief executive pay in 1987 doubled in some cases, excluding long-term compensation.

For example, Navistar International's James C. Cotting made $640,000, up 113 percent; Merck & Co.'s P. Roy Vagelos made $1.37 million, up 42 percent; USX Corp.'s David Roderick made $1.36 million, up 85 percent.

When long-term compensation such as stock options and restricted stock grants are factored in, the figures can multiply considerably and aren't necessarily related to a company's size or profitability.

A stock option is a right to purchase stock at a set price in the future. Restricted stock is owned but cannot be sold for a period of time, usually three to five years. Both are heavily used in management pay packages in order to retain valued executives.

An annual survey done by Business Week found the highest-paid executive in the land last year was Jim P. Manzi, chairman of Lotus Development Corp., who made $26.3 million, mostly from gains realized on stock options.

Ford Motor Co.'s chairman and chief executive Donald Peterson made $3.37 million. His chief operating officer Harold Poling made $10.55 million, largely because he exercised stock options and Peterson didn't.

In the case of Iacocca, No. 2 on the Business Week list, much of his $17.9 million of compensation last year also came from exercising stock options, granted under a 1983 agreement designed to keep him at the helm of the automaker that he helped save from bankruptcy earlier this decade.

Defenders of Iacocca's compensation argue that he took a substantial risk in turning the company around and the stock would be worthless today if it hadn't been for his talented leadership.

In response to questions about his $20.54 million pay in 1986, Iacocca himself once said: "That's the American way. If little kids don't aspire to make money like I did, what the hell good is this country?"

Unionists call Iacocca's pay exorbitant and a slap in the face at the Chrysler workers, especially in a year when the automaker's profits fell and management exhorted labor to cut waste.

"We find the Iacocca thing excessive," said John Zalusky, an AFL-CIO economist who specializes in collective bargaining. "The workers there made a greater contribution and sacrifice than he did."

How Iacocca and other top U.S. bosses obtain lucrative pay packages often involves a complicated process that begins in the executive boardroom, where a compensation committee of outside directors evaluates management performance.

These directors often are busy executives themselves and must rely on the recommendations of an independent compensation consultant, who in some cases has been hired by the boss himself.

"The directors can be misled," said Jude Rich, president of Sibson & Co., a large compensation consultant firm based in Princeton, N.J. "Unfortunately, there's more of that than there should be."

Another reason the boss's pay keeps rising is that boards are afraid of losing top executives, Rich said. It's quite rare that a board will tell management to take a compensation cut.

"That's a weighty thing. What if you're wrong?," Rich said. "So 15 of your top guys walk and go to someone else. Then we have a debacle on our hands. The leverage you get from keeping top executives happy is very high, so boards err on the side of being careful."

Charles Peck, a compensation analyst at the business-funded research group The Conference Board, attributed multimillion-dollar pay packages to economics: too many companies chasing too few skilled chiefs.

"My view of executive compensation is like all compensation, it's market driven. The company pays what it has to pay to recruit and retain a person," Peck said.

"Is an individual worth this amount of money? Is Michael Jackson worth millions of dollars for a TV commmercial? A person is worth what the market is willing to pay for him."