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...... The increase in fringe benefits produces a higher level of employee satisfaction and this can often be achieved without major efforts from the employer. Such situations refer to tax advantages, increased efficiencies or the creation of economies of scale
The principal-agent problem
The principal is the organization, which follows to register profits. In this however, they need the support of the employees, or the agents, who are hired by the principal to make products and services which are then transformed into profits. The agents become employees because they need the wage and the benefits to sustain their living standards. As a result, the principal-agent relationship is based on mutual interest. The problem in this relationship occurs when the goals of the two parties begin to diverge. In this instance then, while the companies remain focused on profit registration, the agents become more focused on achieving increased utility. The problem arises when the employees pursue other goals than those promoted by the principal......

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