It was more than a century ago that an engineer named Frederick Taylor walked into factories and starting timing workers with a stop watch. He dissected their movements, and organized them more efficiently. The monitoring tool, the 21st century equivalent of Taylor's stopwatch, is the computer. Those of us who use them produce rivers of data describing the hours of our work day. Suppose modern firms pay employees based on the quantity of work completed each day as monitored through computers by managers. How would this solve the principal-agent problem?
A) through employee incentive pay
B) through employee ownership
C) through employee long-term contracts
D) through employee monitoring

Question

Quizplus · Accepted Answer

By paying employees based on the quantity of work completed, firms align the interests of employees (agents) with those of the firm (principal), thus providing an incentive for employees to work efficiently and effectively.

It Was More Than a Century Ago That an Engineer