Efficiency Wages Essay

656 words - 3 pages

Question: How would you solve the principle-agent problem in your company? Be specific and include at least four specific actions.
I began writing this essay with the idea I would use principal-agent problem examples from the firm I work for, but it quickly became a list of gripes, which I did not find conducive to the question at hand. Instead, I focused on providing suggestions for what I feel are the top four principal-agent challenges facing the firm I work for. They are as follow:

1. Based on the examples in this weeks lecture, I feel the firm I work for handles the principal-agent problem through “managing by intimidation”. This management approach creates extreme morale issues for the staff, as well as a great deal of stress to a workforce that already has very stress-full jobs. This approach seems counter productive within a firm that provides on-site services to customers, because the employees providing these services are obviously bitter and not providing the quality of work expected of them. However, I can understand their decision based on the fact we are all “remote” employees. This creates a large challenge for the firm to manage. They claim employees are taking advantage of the amount of time they actually work and expenses they incur in the field. The firm has instituted all sorts of remedies including tracking software on cell phones and laptops. All of these so-called remedies, although well intentioned, cost the firm a great deal of money to implement, support and creates a distrusting culture throughout the organization. In contrast to this management method, I would propose a more supportive approach; one that revolves around an “incentive pay plan”. This will be the basis for my final three answers.

2. The bonus and profit sharing approach seems like a far less expensive approach than managing by intimidation and would help align the interests of employees (Agent) with those of the...

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