Besides accounting, marketing and financing, the another important part of a company is management. A firm cannot have good performance without a effective and efficient management system. In economics, there is a famous issue called “Principal-agent problem” which is relevant to how to manage employers well. According to the theory, the employee wants to maximize his company’s profits but what those employers hope is to get their salaries with minimum work. These two facts conflict to each other and will cause an inefficient working environment.
There are several solutions to this issue such as giving ownership to employers, offering them incentive payment and signing long-term contract. In fact, the key element of these solutions is giving employers incentives and inspiring them to work more passionate. This is also the core concept of performance management. A manager must learn about how to approach employers, organize company structure and build up a perfect working environment. There is no doubt that offering incentives is costly and sometimes it will generate loss in a short run. However, from a long run aspect, these methods always provide employers with return on investment.
Reference:http://www.smartkpis.com/blog/tag/principal-agent-problem/