This article by John Gapper exposes the perverse incentives for traders in big banks and explains why Jérôme Kerviel was perfectly rational in his actions at Soc. Gen. This article requires an FT subscription, but someone has helpfully cloned it on the web here.
The perverse incentives of chief executives at large, publicly-quoted firms has led to the explosion of private equity, where the agency problem is solved by shooting the agent. Hedge funds may have some mechanisms to solve the trader's put problem. (The idea that the trader has a free option to 'sell' his position by just quitting or even being fired. This means that his incentives are asymmetrical: if his position makes a lot of money he gets a big reward whereas if they lose a lot of money his punishment is quite mild).
