Incentive Theory

In this paper I examine agency theories and the impact it has on corporate life today. I find substantial support (in research and real life) the teaching itself has contributed to greed and the “agency culture” that has driven many firms to their doom. When it comes to game theory and experiments people tend to be self-serving at different levels. Outside these applications most people are also self-interested, resourceful and maximizers (REMM) but it is not all they care about, as they want to create their own fortune without violating the social norms, unless they believe the benefits are great enough. Despite being the most used incentive, external incentives are unreliable as they often fail to satisfy core psychological needs (autonomy, competence and relatedness). A person’s well-being is depending on the fulfillment of the three core psychological needs which in financial incentives are translated into core financial beliefs (financial self-efficacy, financial autonomy and financial relatedness). When looking at history and the present we are able to find angel agents and principals with great personal traits, who are great at using internal incentives in their leadership and creation of culture, in which the put the agents first, without tempting the agent with huge benefits packages. In addition external CSR can also be considered in motivating the agents through external prestige and Employee-company identification (E-C identification).