Saint Leo University Incentive Conflict Business Discussion

Part 1. Should be between 300-500 words. Use websites that are based in the United States and use at least 2 references. Please use in text citations.

Identify an incentive conflict in your firm, or one you have read about, that reduced firm value. As part of your answer, discuss whether or not one or more of the legs of the organizational stool was unbalanced, and if so, how that contributed to the conflict.

Part 2(a) For both parts this is the response for discussion post. Use websites that are based in the United States and use at least 2 references. Please use in text citations. Please add on to what was already talked about. Don’t repeat what was basically already said.

The federal government employee rewards and incentives system has long been scrutinized. It is common knowledge that firing a federal employee is can be nearly impossible, and at times even puts the supervisor at risk due to union grievances or other such complaints. This organizational architecture has created a system to allows for free riders develop within the firm, creating a marginal cost to the taxpayer much greater than the realized marginal benefit produced by the employee. Secondly, bonuses and rewards offered to top-performing government employees are minimal compared to the private sector, creating an organizational architecture with high levels of decision rights at some positions compared to their much weaker incentives and rewards systems, leaving the organizational stool unbalanced. The chair consists of three legs, assignments of decision rights, the firm’s reward system, and the performance evaluation system (Brickley, J.A., Smith, C.W. & Zimmerman, J.L. (2021).

In 2017, the federal government only fired 11,046 persons out of the 2.1 million workforce (not including the military). This was 0.5% removal rate with the federal government (York, J.W., 2018). The low removal rate is in part due to the burdensome process of trying to remove a federal employee. Federal employees are not only protected by collective bargaining agreements but also through intensive federal regulation designed to protect the government worker. However, the burdensome process leaves management with the burden of following stringent federal regulations when addressing performance or disciplinary issues with the employee.

In addition to burdensome disciplinary procedures, the federal government’s awards and incentives system does not create a policy that motivates employees to perform at high levels. A federal employee often seeks. The stereotypical “lazy government worker” exists due to the federal government’s organizational architecture. The federal government pay charts consist of several pay bands; however, the General Schedule (GS) pay band is the most common. There are 15 pay grades within the GS system, and each pay grade consists of 10 steps. Each step averages a 3 percent raise, and the raises are automatically based on longevity. Steps 1-4 occur each year, then two years between steps 4-6, and finally three years between steps 7-10 (Office of Personnel Management, N.D.). This creates an incentive system that automatically provides employees the marginal benefit of increased salary based on longevity without increasing the marginal costs of increased or superior performance, fueling the “lazy government worker.” It is apparent that the federal government’s organizational stool is left unbalanced when realizing the primary pay scale rewards system is not performance-based.

REFERENCES

Brickley, J.A., Smith, C.W. & Zimmerman, J.L. (2021). Managerial Economics and

Organizational Architecture. 7^th Ed. McGraw-Hill Education

Office of Personnel Management. (n.d.). General Schedule Classification and Pay.

https://www.opm.gov/policy-data-oversight/pay-leav…

York, John W. (19 July, 2018) The Heritage Foundation. Firing a Bad Federal Employee May

Get a Little Easier. https://www.heritage.org/government-regulation/commentary/firing-

bad-federal-employee-may-get-little-easier

Part 2(b) For both parts this is the response for discussion post. Use websites that are based in the United States and use at least 2 references. Please use in text citations. Please add on to what was already talked about. Don’t repeat what was basically already said.

Several years ago, I worked as the accounting manager for a local bank. The bank was located in a rural area, and the majority of the stock was owned by one family. The president of the bank was a member of that family, and he was responsible for the day to day operations of the bank.

Incentive conflict is the divergence between what is in the firm’s best interest, specifically profit maximization, and maximization of other’s utility. In this case, one of the causes of conflict was perquisite-taking (Brickley et al., 2021). Perquisites may be described as benefits awarded to certain employees, often executive-level, that are not provided to all other employees (Executive perquisites negotiation, 2021). The president often took extended time off during the year, above and beyond to what he was entitled as a senior leader of the bank. In addition, the bank paid for remodeling of the president’s home, as well as the furnishing of his home office. While it was in the best interest of the bank to appropriately compensate the president, and perquisites are often included in executive compensation, the bank president’s perks were excessive and were in conflict with the firm’s goal of maximizing profit (Veritas Executive Compensation Consultants, 2020).

According to Brickley et al., the three legs of the organizational stool are the assignment of decision rights within a firm, the methodology of individual rewards, and evaluation of performance (2021). Ultimate decision rights in the firm very clearly belonged to the president; lower level employees had no authority to challenge his decisions, and the board was seemingly not aware of the impact of the additional expenditures or perks. Appropriate evaluations of performance did not occur, as the board of directors looked to the bank president for bank status. If the bank made money at a sufficient level, the directors were satisfied that all was well. In this example, all three legs of the organizational stool were wobbly. While the bank was profitable, better designed architecture would have maximized profits.

References

Brickley, J. A., Smith, C. W., & Zimmerman, J. L. (2021). Managerial Economics and organizational architecture (7th ed.). McGraw Hill LLC.

Executive perquisites negotiation. Carey & Associates P.C. (2021, September 28). https://capclaw.com/executive-perquisites-negotiation/#:~:text=Executive%20Perquisites%20are%20those%20benefits,provided%20to%20all%20other%20employees

Veritas Executive Compensation Consultants. (2020, August 25). What are perquisites and what role do they play in executive compensation packages? Veritas Executive Compensation Consultants. https://veritasecc.com/insights/what-are-perquisites-and-what-role-do-they-play-in-executive-compensation-packages/

Part 3. Should be between 750-100 words. Use websites that are based in the United States and use at least 2 references. Please use in text citations. And be very in depth with this response.

eBay operates the world’s largest online auction. It is a multi-billion-dollar business, which in 2018 generated nearly $11 billion in revenue from its operations in about 33 countries. Sellers pay a small fee to eBay to list their items. They provide a description of the item, photographs, the minimum acceptable bid, accepted forms of payment, and other relevant information. Items can be sold at a fixed price or through an auction. In an auction, bidders submit electronic bids over the Internet. After the auction closes (auctions usually last several days), the high bidder received an e-mail. The high bidder must contact the seller within three business days to claim the item and arrange payment and delivery. eBay provides other support services:

• The Feedback Forum is a place where eBay users leave comments about each other’s buying and selling experiences. If you are a bidder, you can check the seller’s Feedback Profile easily before you place a bid to learn about the other buyers’ experience. If you’re a seller, you can do the same thing to check out buyers. Each participant is given a Feedback Score based on the number of positive and negative ratings they have received. Participants with sufficient positive ratings are flagged by colored stars. The highest rating is the “Red shooting star.” eBay has created a set of policies to guard against “feedback manipulation” and “feedback abuse.”
• eBay users are encouraged to settle transactions through PayPal. PayPal provides free insurance of up to $2,000 on some items to protect buyers in cases where they do not receive the item, or it was less than expected.
• Participants sign user agreements that specify the trading rules and expectations. eBay’s safety staff investigates alleged misuses at eBay such as fraud, trading offenses, and illegally listed items. Potential resolutions include such things as banning a person from future trading on eBay.

• How does eBay create value?
• What potential contracting problems exist on eBay?
• How does eBay address these problems?
• What are the contracting costs at eBay?
• eBay claims that it has only a small problem with fraud and misuse of the system. Does that imply that it is overinvesting in addressing potential contracting problems? Underinvesting? Explain?