Principal agent: the arrangement between owners and managers

For example, shareholders of a company (principals) elect management (agents) to act on their behalf, and investors (principals) choose fund managers (agents) to manage their assets. This arrangement works well when the agent is an expert at making the necessary decisions, but doesn't work well when the interests of the principal and agent differ substantially. Source: http://www.investorwords.com/3840/principal_agent_relationship.html

Monday, February 11, 2008

performance measure = pseudo science

There are perfectly obvious things a company can do to use money to manage people. Peer pressure works. Numbers work. Systematic approach works, as with any science. Abandon the knee jerk confidentiallity of the annual review process. Forget about keeping everyone's salary secret. A) it aint a secret. Unless you live under a rock, you know within a few K how much everyone on your floor makes. Don't try to hide salary info, shout it from every corner. Transparency means accountability. If everyone knows how much everyone else makes, free riders can't hide. Discrepancies become glaring. Now you get paid not just how much you think you are worth, but how much everyone thinks you are worth. Your valuable workers know they are valuable. Each of us knows the relative quality of the work we are capable of.
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