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Nobel Prize Winner Shiller Blames Crony Effect for Executive Pay

Jan. 24 (Bloomberg) -- Soaring compensation levels for executives can be the consequence of a “crony effect” on companies’ boards, said Nobel prize winner Robert Shiller.

“There is a crony effect in business,” Shiller said in a Bloomberg Television interview at the World Economic Forum in Davos, Switzerland. “That’s where your friends with the board do you a favor and maybe you’ll do them a favor.”

Public outcry at the height of the financial crisis spurred governments to act on curbing executive pay, with the European Commission planning to limit bankers’ bonuses to twice their fixed salary. The board of JPMorgan Chase & Co. voted this week to increase Chief Executive Officer Jamie Dimon’s annual compensation after cutting it by half to $11.5 million in 2012, according to a report by the New York Times.

Shiller, who won the Nobel Prize for Economics in 2013, said the situation has improved since the financial crisis because of “public attention,” while warning that inequality is partly a consequence of “unmanaged risks” in society.

“We as a society know that it’s not in anyone’s interest to have the bottom half of the population struggling,” he said. “Billionaires don’t want that.”

Swiss voters rejected proposed limits on managers’ pay in a November referendum. Ballooning executive payouts while company profits slumped and taxpayers bailed out UBS AG, the nation’s largest bank, had led to calls for a more equal distribution of wealth.

To contact the reporters on this story: Alessandro Speciale in Frankfurt at; Tom Keene in New York at

To contact the editor responsible for this story: Craig Stirling at

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