Moral hazard

Over the last decades we have seen everything about the good and the bad of free market economy; we have learnt a lot about the consequences of moral hazard. Moral hazard is the tendency for one person to engage in riskier behaviour when the consequences of this behaviour will be dealt by others. One example might be an insured shop owner, struggling, who will not have any incentive in investing in a new fire system as, after all, a fire would permit them to collect the premium of the insurance. The insurer does not have complete information on the behaviour of the insured or their intentions, therefore will incur a higher risk than the risk of fire in itself. However, this typical example does not adequately illustrate when moral hazard occurs at the level of management.

The 2006/7 financial crisis was an astounding example of moral hazard, where many groups of people accepted higher risk they should have done (banking management, intermediaries and the recipients of sub-prime mortgages). Let’s focus for a moment on the management within financial institutions as it is a more appropriate example of what I will have to say. Before the financial crisis unfolded, executives were either aware of the problem, and they defrauded millions of people, or they were not, they were just incompetent. Were they deserving their jobs and the substantial compensation schemes they had and still are receiving? Is the market setting this compensation packages? I will come back to this point later. Either way, the initial response of Governments was difficult: bailing-out private institutions, reinforcing the possibility for moral hazard to incur in the future, or let the system fall in an uncontrolled manner? Considering the situation, most Governments decided for supporting financial institutions, therefore reaffirming that management of financial institutions may have operated under moral hazard: as the fall-out of their riskier behaviour was, in very large part, handled by States, Governments and the People.

But this blog-post is not about the financial crisis.

The University of Bath ‘affair’

Over the last few weeks, national news in the UK reported on protests of employees and students at the University of Bath on regard of the high salary earned by Dame Prof Glynis Breakwell, their Vice-Chancellor (~£468,000 and benefits). Reports were initially accurate, but they got occasionally derailed by attempts from various academics to defend high salaries for academic governance in general or Prof Breakwell specifically. Let’s clarify immediately, I do not have an opinion about how much a Vice Chancellor should be paid. Half a million may be the right number, or it may be too low or too high, I just do not know enough. But a few things bothered me in this debate: responsibility, accountability, and gender equality.

The market sets compensation schemes, does it?

I have read the commentary written by Prof. David Blanchflower and published by The Guardian, entitled “University vice-chancellors deserve more pay, not less. Here’s why”. The reasons for high salaries described in this article are clear and even agreeable at first instance. Universities have to hire their governance in a global market with competitive salaries. I have nothing to debate about this truth, but I am afraid there is another truth, not too hidden, that went unnoticed here. The protests were not a generic complaint about the high salary of academic leadership, it was a specific complaint about an almost 4% salary increase for the highest paid Vice-Chancellor. Allegedly, compensation for the governance at the University of Bath was established with insufficient transparency, with an undeclared conflict of interests and a motion from the Court of the University was hindered by those that should have left the room during a vote because of conflict of interests. This is not my opinion, but the informed and competent judgment (I suppose) of HEFCE, the Higher Education Funding Council for England. If you are interested in this story, please read their report.

Is moral hazard or the market that set salaries?

I am no economist, but my naïve opinion is that this is a typical case of moral hazard in management. As discussed, moral hazard takes many shapes and forms, but it has been identified as a dominant reason for the uncontrollably increasing compensations for executives in Industry. It is true that Academia recruits on a global market, but Academia must shape the global market both training adequately future executives and leading by example.

There is a debate, until now unrelated to Academic governance as far as I know, about the compensation of executives that appears to have become untenable, influenced by executives themselves, paying marginal consequences when their actions damage the brand they represent.

Let’s say you have the right not just to ask a pay rise, but to vote in favour or against. Let’s say that you give yourself a million pounds per year, irrespective of outcomes, in addition to a complex package of benefits that may depend on the performance of your company. After one year of work, your company goes bust and you have lost the value of your shares and options. However, you have just earned 1 million in 1 year, that is an amount of money that corresponds to 37 years of median salary. So, corporate executives raise their pays (not all of them!), constantly, to capitalise on short-term investments, possibly (even unintentionally) misjudging the consequences of their decisions as their livelihood, and those of their families, contrary to the vast majority of people, do not really depends on their productivity. This is moral hazard.

Executives are entitled to ask for an increase of income, but the procedures for these extraordinary compensation packages (from the point of view of people paid ‘normal’ wages or unemployed) shall be transparent and not just justifiable but justified.

I do not believe that this is a common issue at Universities, but how the story unfolded at the University of Bath resemble one of these cases. Let me do an example.

Dame Prof Breakwell is paid a high salary because she has to look after public relationships and take important executive decisions for a large business and an important brand. True. Complaints about the pay rise should have been expected, so a high degree of scrutiny. The Council voted down a motion of the Court requesting more transparency. In authorising the pay rise in a period of protests about wages and trying to quench the formal protest at the University Council, some (let’s be clear not all) academics accepted the risk. This was a misjudgement, and now the University brand will pay the consequences. At the time I write, Dame Prof Breakwell will retire, after six months paid sabbatical and with a written-off loan: isn’t this moral hazard?

Are Vice Chancellors paid too much?

It is not that Vice Chancellors are paid a too high salary, but the problem is transparency, respect of the opinions of your employees and ‘customers’ (the students I suppose), respect for the brand one represents and, a better understanding of societal changes. I hope that other Vice-Chancellors will be proactive, not in cutting down their incomes (this is a different matter), but in understanding and shaping societal changes.

Universities have the moral duty to shape society not to be just the mirror of it. What some people might not appreciate is that the uncontrolled rise in executives compensation (in Industry) is causing damage to business three folds: by draining resources from investment to disproportionate personal wealth, by inducing short-sighted selfish behaviour with no incentive for long-term investment in assets and people, and bad publicity to industry creating a sense of complete disconnect, distrust and unethical behaviour that damage the brands they should promote. The latter point is often neglected, but it is very important. A chancing society and pressure groups, if neglected, can cause a lot of damage to a ‘brand’. This is not in Academia but in the world of Finance and Big Industries. Are we walking the same path now? Most people will say no, as compensation packages for academic governance are far from the excesses of USA corporations (true), but as I tried to say a few times by now, the issue is not necessarily the pay level, but the process and incentives in place.

Fully justify high salaries and adopt transparent decision processes, but also do not disregard the growing intolerance for inequality. Do not speak, in an abstract manner about the market, be specific. Moral hazard is part of the market, it is an unfruitful degeneration of it, which goes against the principles of free market economy. Most Academics and University employees dedicate their lives to improve society. Sometimes we are wrong, other times ineffective, but most of us, Vice-Chancellors included, are well-intentioned and passionate to make of the future UK, a competitive global and fair Nation. Therefore, do not let greed, or simply lack of due process, to damage our brand and collective efforts.

Was gender an issue?

There is another ‘inequality’ that bothers me: gender inequality. The top-level academic world is dominated by man. I am a white nearly middle-aged man, with the ambition to become a ‘fully-fledged’ academic. However, I cannot avoid noticing that women representation among academics is still low and it pains me that to get in the line-of-fire was a successful woman. I do not know statistics about Vice-Chancellors and gender-balance, but I did check the Russel Group. I count six female Vice-Chancellors and seventeen males, ~25% female representation, a figure we are too often familiar with. I am sure that all Universities are committed to improving, we feel very strongly about this at the University of Cambridge, but the historical heritage of male-dominated academia take a while to change.

The Guardian published another letter in support of Prof. Bakewell, this time signed by several female academics of the University of Bath, which start with “Being a successful woman seems to attract a disproportionate degree of negative criticism”. I am sure that this is true, but I should clarify that gender, for me, did not matter, and also for the articles and material I had the opportunity to read. The highest paid Vice-Chancellor in the UK was, by chance, a woman. HEFCE criticised procedures that were opaque, behaviours trenched in conflict of interest. When a woman raises at a position of power is, first and most importantly, laudable because being one of the best in their area irrespective of gender. Second, a woman in a position of power in a male-dominated environment is also laudable because of the many obstacles that women still experience in career progression, particularly at the top of the scale. However, people of power should accept the increased scrutiny and the responsibilities that come with the higher salaries they are paid, irrespective of gender and background.

Leadership for the future

My hope for the future is to see inequalities of all types to diminish and eventually disappear. I hope to see more women in academic governance. Irrespective of gender, I wish our leadership will keep fighting to improve the society we live in, fight against the profound inequalities we experience even in the United Kingdom, be this income or gender inequalities. I wished we trained the economists, the bankers and the lawyers that will reach the apex of various Industries to lead change. Because the only way we can defend a free market economy is to ensure that the right checks and balances are in place, monopolies are not created, packets of extraordinary wealth (corporate or individual) do not exist (otherwise they distort the dynamics of competition as much as a monopoly).

Let’s never say “it is the market that decides” because it is always people that decide, and it is ok if we follow due process.

In mid-2016, I read this Nature News about the payment of overtime for USA post-doctoral scientists and the possibility that this would lead to fewer positions available. This article inspired a post I published on LinkedIn, that I would like to repropose in a radically updated form. In the original post, the premise was overtime payments for post-docs in USA.

IDENTITY AND RESPECT | I am not very sensitive to titles and I am a very pragmatic person, therefore, I was never sensitive about being called a post-doc, but should you? Let me tell you a personal story.

A few years ago, I had the honour to work with Dr Virgilio Lew [1] at the University of Cambridge. Virgilio is a great scientist and a wonderful person who gave me the opportunity to taste how we should work in science, the love for the scientific question, the stories around small and big scientific discoveries, the humanity around individual researchers, the excitement of the scientific debate – even antagonistic at times –  but the preservation of the joy of science despite all the politics and over-competition of modern Academia.

I do have one regret, that I could not fully enjoy that period of my life. Back then, I was an anxious and moaning chap, distressed by the instability of our jobs, the constant mobility and the difficulties to synchronize careers with a partner, the self-inflicted hard days/nights/weekends work paid, at the time, below average UK income. In other terms, I was a post-doc, experiencing a rather normal life crisis, thrust by a very successful PhD into the space of wild competition for a PI position that I actually never cared to seek before.

When Virgilio would introduce me to colleagues, he would always say something along the line: “this is Alessandro, a [replace with a positive adjective of your choice] biophysicist who joined me and Teresa to work on the homeostasis of red blood cells infected with Plasmodia”. Or, “this is my colleague Alessandro…”  I never heard Virgilio calling me a post-doc. I think that elegance and class are in the spontaneous attention to detail. Did it matter? Well, the fact I took notice of it probably means it did at least at an unconscious level. I assume it inspired a sense of community, a sense of belonging to the academic world, irrespective of seniority. Many friends left science for many reasons, but one recurrent theme is not feeling to belong to a community.

EMPLOYEE LOYALTY AND EFFICIENCY | Of course, eventually, the word post-doc is not the issue [2]. It is very important to ensure our colleagues feel they belong to the organization they work with and the wider scientific community. As far as I understand, in Industry this simple concept is called employee loyalty and it is considered to be an important factor in boosting efficiency. Most members of staff working at Universities, at least within my limited experience, have open-ended contracts that allow them to identify with their own institution; similarly, academic staff can be loyal to their University and look after their good homes. Most junior researchers, however, are that ocean of colleagues between their PhD and a PI position – or a career change – that experience short-term contracts, high mobility, compounded with the uncertainties inherent in the scientific research. Often, this overlaps with a period of their lives when people start to build a family as well. Can we ask employee loyalty from junior scientists? Can we reach the level of efficiency that employee loyalty can offer? What about the experience we lose every time a junior scientist leave and the time we have to reinvest in training? And which are the mental health implications of the current system, asking our brightest and youngest minds to work under this level of pressure and insecurity?

I would like to work with deserving colleagues for ten or twenty years, if they do not care about changing their jobs, but we rarely can because the job of a post-doc is unsecured. Therefore, I agree with those proposing to establish more permanent posts for researchers and to establish also in Academia the role of professional scientists, a rare position. Currently, we seek efficiency through fierce competition, with post-doc ‘killing machines that will select the best’, at the same time distracting them from their primary work (doing science), giving incentives to cut corners and behave very individualistically. However, we can achieve efficiency by building employee loyalty, building teams of scientists that can dedicate themselves to the big picture, and not ‘just’ to how to solve a career problem.

One of the issues we have in Academia is that there is too much emphasis on leadership and too little on team-working and community effort. We are rewarded only if we are the first author on a paper, the principal investigator on a grant, the group leader in the lab, and this eventually leads far too many people to aspire to a leadership position and neglect the importance of working together. This is combined with the fact that to remain in Academia, we have to become leaders, otherwise, we are out. How many PIs were good scientists, but were not selected on the basis of their capabilities to manage people to then… manage people?

A NEW CAREER STRUCTURE | There will be always plenty of people that will aspire to become a leader or to climb the ladders of management, either in Academia or Industry. There are also plenty of people that are more than happy to do science at the bench and, as I have already mentioned, creating good and stable employment opportunities as professional scientists might improve efficiency and life of early and mid-career researchers. However, even if you agreed with me, there are significant barriers to establishing such a system.

First of all, while progressing in their careers, scientists become financially unsustainable certainly in comparison to a PhD student but also compared to more junior colleagues. Then, it does not matter if you wished to retain a co-worker because of their experience and expertise, you have to move on to who you can afford to employ. If we shifted our scientist base to more senior people, on average, there will be unavoidable cost implications that can be addressed only with higher budgets or fewer appointments.

Second, there are only limited positions available as post-doctoral scientists; if you are lucky and love this job, you can get a 5 years continuous appointment. To have this job for life, we could probably appoint 90% fewer post-docs, while waiting for one retiring.

Therefore, increasing the number of professional scientists in Academia will require a drastic reorganization of the sector and probably higher budgets to maintain a similar level of researchers. This will require an enlightened and competent central government working together with a united academic governance both agreeing that change is needed. I am pessimistic for this to happen, but if we cared about productivity in science (not measured by impact factors, but by discoveries that will impact society) and the mental health of our scientists, perhaps we should consider change.

FEWER AND BETTER PhDs | Another change that may be required is how we train PhD students. At least in the UK, we are under pressure to get students finishing their PhDs in 3 years and consider this just as part of a broader training. Personally, I wish a PhD student in scientific topics to be an inexperienced but bright scientist, an expert in their field by the end of their PhD. Training students to do experiments should be the duty of undergrad courses, but here I am very biased by my background in physics. In physics, at least at the University of Genova, we got trained in physics of course, but also on how to build equipment, to develop software, to interface the two, to execute experiments, to analyse data, all of this with practical courses after passing examinations in the lab, written and oral. I guess I am an old-fashion one by now, but I wished that with the completion of pre-doctoral studies all students should be capable to do experiments, including coding and hardware interfacing. Also, I wish that students were also ready for industry. The PhD, in my opinion, should be Academic-oriented (wait a a sentence or so…), taking between 4 to 5 years giving them enough time to lead to substantial discoveries. On the way, some students (or their supervisors) will notice that Academia is not what they want to pursue and they could opt-out of their doctoral studies for a lower degree, if deserving. Both students completing their PhDs or lower degrees should be offered business-oriented experiences, in order to offer a wide range of choices and facilitating the transitioning to Industry or to non-academic posts within Universities. Far too often, the transition to non-academic jobs is lived or considered a failure, where this should be embraced as one of the likely, actually the most likely, outcome after studying at University instead. Therefore, we should have srudents ready for Industry irrespective of docoral studies and there should be planned paths from doctoral studies to Industry. There is too little awareness, during doctoral studies, about the need to plan a career outside Academia and about the odds to stay in Academia. If we could train better our students at undergrad and graduate levels, avoiding to rush them on the job market, but getting them on the right track as soon as they know what is best for them, Industry will benefit from more qualified junior scientists and Academia from a more moderate pressure of intake of junior scientists towards unsecured jobs.

CAREER TALKS AND MANAGING EXPECTATIONS | In any management course, you will be taught that one of your duties is to manage expectation of those working with you. Then, often, we operate giving the illusion to junior scientists that they will become known professors, you just need to do that big discovery published in Nature, creating lots of press releases. In career talks, people provide examples of success stories – and rightly so – but rarely depicts, in my opinion, the reality that a junior scientist faces, with plenty of exceptions of course.

Once I attended a meeting where the work of mathematicians employed at post-doctoral level was instrumental in advanced magnetic resonance imaging with important implications for basic science and translational medicine. At the end of the meeting, a simple question was shot: “you discussed all these great advancements, but what career opportunities those mathematicians have?”. The Academic in charge, honestly, candidly and with clear expressions of sympathy and compassion (my interpretation) replied: “None. Unfortunately, we do not have the right career structures to support them.” A colleague, trying to rescue the situation added: “but all these people have successful careers within Industry”. Let’s be clear, sometimes you will have no prospect in Academia, not because you are not excellent, not because you are not appreciated, but simply because there is not an adequate career structure for you, in the specific case, the possibility to promote mathematicians adequately within a medical department. If this is the case, plan your career path away from Academia soon enough. But how much waste of talent from Academia which, hopefully, is compensated by big gains in Industry. But this exchange of talent might result in a net loss of efficiency in Academic research.

Another time, during a leadership course, a colleague asked: “my husband is a PI here in Cambridge, but I got a good offer in another University. We have a young child and a difficult choice to do because perspectives for post-docs in Cambridge are rather bleak”. Answer: “I understand is tough, but sometimes we need to decide which are our priorities, family or career”.

Then here it comes a career talk speaking about how difficult but rewarding it was to become a Principal Investigator at the University. Question: “if someone does not want to become a PI, but loves to do science at the bench in the academic environment, which options have?”. Answer: “I advice my people to embrace research assistant positions”

Not all of us will agree, by a system ran by smart people, often of very liberal background, often committed to social advancement, Academia, should not systematically put people in condition to decide between family and work (often penalizing women in STEM), not have the right career structures, or operate on a competition model without adequate incentives for employee loyalty.

CONCLUDING | I am not an expert in this area, but I wished to provide my view on how we should change career structures in Academia.

1. Work upstream and invest more on under-grad and grad students at the same time awarding fewer PhDs. Fewer and better junior scientists in Academia will reduce pressure on mid-career scientists. Better undergrad students with more practical experience will help Industry as well.
2. Value training and career options. A PhD is not a piece of paper to stay a while in Academia and then get higher pays in Industry. Other careers are great alternatives, they are respectable choices of great value for individuals and society, including being a scientist without being a leader.
3. Work downstream, increasing investments in stable posts that do not depend on grants for senior scientists adding this as a valuable career option currently reserved to a very few. Not everyone wants to or should be a PI or a Professor. Loyal and less stressed employees will work more efficiently.
4. Identify the appropriate career structures suitable for the age we live in, including flexible working for who has family commitments and for scientists moving across disciplines.

Failing to do this, we can simply advise our students and junior colleagues to identify not only the best possible path to a possible leadership position in Academia, if this is what they want, but also the best possible path to the best job they could aspire outside Academia. The transition to Industry should not be considered a lesser alternative choice – after some ‘postdoc-ing’ [2] – but an equally valuable choice. And, we shall always be clear about the chances anyone will have, even if good, to obtain one of those precious posts at University.

Notes

[1] Let me acknowledge the great work we have done as a team, Dr Virgilio Lew, Dr Teresa Tiffert, Prof. Clemens Kaminski and Dr Jakob Mauritz. Here, I speak only about Virgilio as I report only a personal account of our conversations.

[2] There are plenty of terms I dislike. For instance, the term ‘permadoc‘ to define lifetime postdoctoral appointments made me shiver. True, do not let terminology to bother you too much, but also do not let other to push you down by (inadvertently I am sure) defining you with inadequate terminology. If you are a post-doc, you are a junior scientist or junior researcher, you are not ‘post-doc-ing’ (for the goodness sake!) and you do not aspire to become a permadoc. You are a scientist, growing experience and maturity, looking for a stable work in academia or, of course, for a career change.