How to get managers’ incentives right

HOW BEST should managers be incentivised? In the biblical parable of the talents, a master divides his property among three servants before going away. Two put his money to work and double its value; the third buries it in the ground. The first two servants are rewarded and the third is punished.The biblical story is an early example of the principal-agent problem. When delegating authority, how can a principal be sure that their agents will act responsibly? The problem is usually discussed in terms of the potential for the agents to be greedy, and take money for themselves. The unfortunate servant in the parable acts out of fear, declaring: “Master, I knew you to be a hard man.” Sure enough, the servant is cast into the “outer darkness” where there will be “weeping and gnashing of teeth”.