Alternative Pay Schemes and Labor Efficiency

Discuss alternative pay schemes and labor efficiency.

Some so-called pay-for-performance or incentive pay plans have become increasingly popular throughout the world. Among others, these include:

  • Piece Rates;
  • Commission and Royalties;
  • Raises and Promotion;
  • Bonuses;
  • Profit Sharing;
  • Equity Compensation;
  • Tournament Pay;
  • Please explain at least five of the above plans.

Explain what is meant by the term principal-agent problem. Have you ever worked in a setting where this problem has arisen? If so, do you think that increased monitoring would have eliminated the problem? Why don’t firms simply hire more supervisors to eliminate shirking problems?