HOW BEST should supervisors be incentivised? The first two servants are rewarded and the third is penalized.
The scriptural story is an early example of the principal-agent problem. When delegating authority, how can a principal make certain that their representatives will act responsibly? The problem is normally gone over in regards to the capacity for the agents to be greedy, and take money for themselves. The regrettable servant in the parable acts out of fear, stating: “Master, I knew you to be a hard male.” Sure enough, the servant is cast into the “outer darkness” where there will be “weeping and gnashing of teeth”.
In the business world, some state, fear plays as big a part as greed in distorting manager incentives. Critics claim that managers are unwilling to invest in long-term projects due to the fact that they worry this will damage the business’s revenue growth in the short term. If that occurs, the managers may worry that they will be fired by the board, or that the company will undergo a takeover quote.
Companies have several layers of representatives. The board is stressed over pressure from fund managers who are themselves acting on behalf of the …