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The Principal-Agent Problem: You are hired as a management consultant to provide recommendations on how to stimulate productivity of the...
The Principal-Agent Problem: You are hired as a management consultant to provide recommendations on how to stimulate productivity of the manufacturing firm that produces Printer Cartridges. Your 50% of the variable salary (consulting fee) is directly tied with manufacturing firm’s productivity and employees’ turnover ratio. You will be paid 25% of the variable salary by the end of this current year, and the remaining balance will be paid in the following year. How would you design a specific customized compensation plan for Agent-Principal (owners, managers, and employees) that would address both increased productivity and decreased turnover? And how would you measure productivity?
