Question

Compare the advantages and disadvantages of using spot checks/hidden video cameras in the workplace and pay-for-performance pay schemes as means to influence worker performance

Answer 1

The principal-agent problem signifies the behaviour of the employee that the employer seeks to control so as to maximize his work effort. Out of a few methods that keep a check on a worker’s habit to shirk, two methods are popular. One is spot check or scrutiny through hidden cameras and the other is offering a pay schemes based on performance.

Spot checks are surprise visits of the work place by the managers to monitor the employees. These checks allow the manager to verify not only that workers are physically present but also that worker effort and the quality of work are satisfactory.

When workers realize that their work is monitored continuously by cameras, then the chances of shirking are reduced to a large extent.

Advantage: The advantage of spot checks is that they reduce the cost of monitoring workers. Setting up of cameras is inexpensive compared to other supervisory methods.

Disadvantage: Spot checks and hidden video cameras demoralize the workers. In addition, setting-up of hidden cameras requires additional workers to monitor the cameras.

The advantage of pay-for-performance schemes is that it becomes very easy for the managers to observe and monitor an individual worker’s performance. It also encourage the workers to put their best foot forward.

However, pay for performance schemes are generally costly. Moreover, when the quality of the work is difficult to measure, an individual’s role in generating profit may not be observable.