HRM/Economics
Assessing an Incentive Scheme for Bobs Burgers
Bobby's Burgers has an incentive problem. In order to overcome the current issues, which include poor performance of managers allowing the quality to deteriorate, tt has been suggested that a stock plan is implemented that will give the unit managers 500 shares each. This is a plan that has some potential, but it is not the only option. The first section of the paper will assess the proposal and the second section will consider other ways that the firm may motivate the managers.
Proposal of the stock plan
A major benefit of the stock plan is the way it will provide an incentive for the managers to increase their effort by overcome the principle agent problem by giving the managers a stake in the performance of the company. The problem within firms is that the owners, who are the shareholders, and benefit from increases in earnings and stock prices, effectively delegate the running of the firm to the managers, or agents (Eisenhardt, 1989). The agents do not have the same priorities, they do not have the same interest in increasing the value of the firm; they will have personal interests, such as self preservation (Eisenhardt, 1989). If they have no benefit from changes in the share price their actions are unlikely to be motivated...
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