The role of executive pay as a cause of the financial crisis has been hotly debated. In one view, the severe plunge in the stocks of top banks, the likes of Bear Stearns and Lehman Brothers, caused massive damage to the personal portfolios of top executives, and that proves that compensation wasn't a factor in the excessive risk taking.

But a recent study by some Harvard Law School folks has found that "the banks' top five executives had cashed out such large amounts since the beginning of this decade that, even after the losses, their net pay-offs during this period were substantially positive." Is it thus reasonable to conclude that "repeatedly cashing in large amounts of performance-based compensation based on short-term results did provide perverse incentives--incentives to improve short-term results even at the cost of an excessive rise in the risk of large losses at some (uncertain) point in the future"? 

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