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Mark Gilbert

Banker Bonuses Get a Nobel Dis

Jean Tirole, winner of the 2014 Nobel Prize for economics, has something to teach bankers about compensation structures.
A bonus can hurt.
A bonus can hurt.

Jean Tirole, the University of Toulouse professor who today won the 2014 Nobel Prize in Economic Sciences for his work on industry regulation, has also published analysis on executive pay and the bonus culture. His conclusion is that performance pay too often leads to short-termism; banker bonuses, in other words, can be bad.

In "Bonus Culture: Competitive Pay, Screening and Multitasking," published in April 2012 with Roland Benabou of Princeton University and revised in March 2013, the professors lay out a thesis that financial incentives can skew how workers approach their jobs, with undesirable consequences: