Which of the Following Compensation Schemes Can Be Explained as an Attempt

question 224

Multiple Choice

Which of the following compensation schemes can be explained as an attempt to solve a principal-agent problem?

• A) Real estate agents are paid on a strict commission basis; if they don't sell a client's listed property they don't get paid.
• B) Personal injury lawyers often work on a contingency basis. If the lawyer wins the case they receive a significant share of the award; if the lawyer doesn't win the case the lawyer doesn't get paid.
• C) Traveling sales people, who are costly and difficult to monitor, generally receive a significant share of their compensation in the form of commissions or bonuses for meeting sales targets.
• D) All of the above compensation schemes attempt to solve a principal-agent problem.

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Definitions:

Collective Effort Model

A theory suggesting that individuals are motivated to contribute to a group's goals based on the expected outcomes and perceived value of their contribution towards those goals.

Unchallenging Tasks

Tasks that are easy to complete and do not require significant effort, skill, or creativity.

Social Loafing

The situation in which persons contribute less energy towards realizing a goal when they are part of a group than when they are on their own.

Actual Productivity

The real output or results produced by an individual, group, or organization, as opposed to potential output or expected performance.