Reference no: EM133690401

Question: Incentive schemes serve not only to determine an employee's level of effort, but also to determine the choice of tasks to which the employee decides to allocate her time and effort. A well-tailored incentive scheme should strive, therefore, to ensure not only that the employee's overall level of effort is high, but also that she directs her attention toward the tasks that will maximize the returns to the firm. For example, an incentive scheme that rewards teachers based upon the scores received by their students on standardized tests. Such an incentive scheme can have the unintended effect of motivating instructors to spend more time teaching material that will be tested, while spending less time teaching creative, mind-enriching subjects that, while not tested, may prove more beneficial in the long run.