Abstract:

The current practice in human resource management is the use of a broad toolkit of incentive mechanisms to encourage employees to exert elevated effort (Gibbons and Waldman, 1999). The use of such an array of instruments has been attributed to the agency problem in the employment relationship where the worker effort cannot be verified. Thus, firms design incentive contracts that seek to motivate employees to exert elevated effort in carrying out the job tasks (Mirlees, 1976)