Aligning work with an agent's knowledge, interest, and capability can reduce the conflict between the principal's interest and the agent's actions.Customized employment occurs when the principal and the agent agree on the tasks to be performed.Agents act to satisfy a need to increase their own wellbeing.They will pursue those activities that increase their own personal wealth, or in the case of those agents who value work-life balance, some other interest at the possible expense of the principal.Actions that lead to short-term profits to only increase the stock price prior to exercising stock options, may penalize the owners in the long run.In the case of incentives, decisions are often made within the framework of bounded rationality.
CEOs must use judgment and act in the best interest of the shareholders at large.
Agents tend to focus more on what they're good at and like to do, and the uninteresting tasks may be performed in a less than optimal manner, or not at all.
Agents also want to be members of an organization that embodies equity and fairness.
Agents tend to pursue opportunities that have more certainty.
Agents will strive to create an environment that's consistent and one that reduces the fear of uncertainty.
Agency costs are the costs that the principal endures to minimize the differences between the principal's interest and the agent's actions.