Official: Bankers Not to Blame for Bonus Culture

A report in the Guardian places the blame squarely at the door of a pair of economists called Michael Jensen and Kevin Murphy, saying that their work set in motion the unpopular reward scheme. In 1990, Jenson and Murphy published one of the most famous papers in economics – in both the Journal of Political Economy and the Harvard Business Review – which encouraged companies to incentivise their bosses to perform better by offering them a larger financial stake in their company’s performance. Their ideas were used by executives to justify the subsequent glut of stock option bonuses as they pointed to ‘top research’ that suggested they were effective.

Whilst bankers have taken a lot of flack, economists, too, have been criticised in the past for not seeing the 2008 financial collapse coming; but their role in building the culture that, in part, sowed the seeds of the collapse has been largely forgotten.

As the Guardian says: “…economists didn’t just fail to spot the financial crisis – they helped create it. They provided the intellectual framework and drew up the policies that helped cause the boom – and the bust.”

In light of the anarchist Ian Hope’s call to occupy Stephen Hester’s garden, perhaps they should be disrupting academics in their lecture theatres instead.

Read the full story here.