The Most Common Modes of Social Interaction: the Agency Relationship - Research Paper Example

Human Resource Management can Implement Policies to Address Principal/Agent Problems The principle/agent relationship can take form in many genres ofbusiness. A principle can be either a person, corporation, partnership, nonprofit, government institution or anyone with legal capacity to hire an agent to act on their behalf. The agent is either a person or entity that is hired with expectations of having specific qualifications which enables them to perform desired tasks. The agent also acts as a representative for the principle’s agenda, therefore being a direct representation of the company’s image. Once an agent agrees to represent a principle, then the formation of the principle/agent relationship is established. Since the agent represents the persona of the company, principles should selectively hire agents that can best represent their agenda. This relationship can be ideal when the agent is an expert in the field and displays allegiance to the principle. However, if overall goals aren’t uniformed then problems can arise. In order to minimize misunderstandings, informal or formal contracts, that explain what is expected of the agent, should be given to the agent and firmly enforced. The principle should ensure that vital language is inserted in the agreement to protect and promote the principle’s agenda. For corporations, which are your larger principles, human resource managers should be hired to maximize employee output. Authors David E Dimick and Victor V. Murray (1978: 611) in their article “Correlates of Substantive Policy Decisions in Organizations: The Case of Human Resource Management” defines human resource managers as personnel management which facilitate various organizational objectives. One responsibility of the human resource manager is the implementation of personnel practices that fit the specific needs of the employer. The human resource managers are directly responsible for the hiring of most qualified employees that display the most appropriate levels of capabilities. Thus the human resource manager should act in the best interest of the principle and formulate agency policy that benefits the behalf of the principle. Since human resource managers act as intermediaries between the corporate principle and agent, they should have in-depth knowledge of specific task demands. Knowing what is needed to ensure flow of operations, human resource managers should modify agency policy to include clear language to the agent of the expectations to their duties and expectations of the principle. According to the authors Lee G. Bolman and Terrence E. Deal (2008: 142), authors of the book Reframing Organizations, strong companies should have human resource principles. In order to hire most competent agents, human resource managers should attempt to hire the right people, work hard to retain them, encourage development by investing in them, strengthen the company by empowering them and always promote diversity. However competent the agent is that’s hired, ultimately it is the principles’ duty to ensure the agent is performing up to par. Author Stephen A. Ross (1973: 138) states in his article “The Economic Theory of Agency: The Principal’s Problem,” that “while it might in principle be feasible to monitor the agent’s actions, it would not be economically viable to do so.” With the corporate agency relationship, it is best for human resource managers to take the role as intermediary, however agency relationships may not need human resource managers on smaller scales. For instance, let’s examine the roll of the real estate broker and real estate sales person relationship. The broker, who would be the principle, allows the sales agent, deemed the agent to partake in real estate transactions on their behalf. The real estate transactions can either be the purchase or sell of real estate property or any transfer that occurs. If the principle has just a few agents representing their firm, the principle may consider having an attorney devise a clear legal instrument to clarify all performance expectations of the agent. A human resource manager may be a negative cost contribution as the job description for a human resource manager is excess. However, in order to assist with monitoring the actions of the agents, the principle may want to hire a direct supervisor. Author Roland Strausz, (1997: 337) agrees with this theory. In his article, “Elevation of Monitoring in the principle agent relationship,” the author states that monitoring agents via supervisors would render profitable as information retrieved from the supervisor would be private. One technique principles use to enhance the motives of agents is offering incentives. Incentives typically are monetary and encourage agents to perform at viable levels. This strategy may prove lucrative for the principle, however it may require the presence of supervision. Supervisors can prove to be vital assets to principles for supervisors allow principles to conduct business without being directly on site. If trained properly, supervisors can also assist with daily tasks. Also, supervisors can assist with monitoring the agents while ensuring protocol is not being sacrificed for the sake of profits. The agent should also take precautionary methods to ensure payment will be rendered. The Birmingham Post (2007: 22) suggests that it is not uncommon for an agent to not receive payment on real estate sales. There have been several litigation cases where agents One such instance is where an agent filed suit against a builder for lack of payment. The agent introduced the builder to the site where the home was built. The builder did not sell the home until 7 years later. The courts ruled that the agent’s introduction was “spent” after a year and therefore awarded deemed no commission was due. The primary principle that an agent should enact is to prove that their work was an intricate part of the sale or purchase. The effective cause of the agent’s assistance will be determined if the agent’s work brought about the relationship between the buyer and seller. The relationship between developer and agents prove dire as most builders acquire client through sales agents. The cited case is greatly important for agents seeking commission. It is essential for an agent to keep their leads live and show unthwarted interest in the transaction of the property. An agent should not show an extended lack of concern as payment is based on the agents’ effort exerted. Sometimes this may prove challenging as project sales can span over several years. However, since the payment of commissions is likely to rest on the amount of effort put in by agents, they will need diligently work at ensuring that their leads remain actives due. The agency relationship is one of the most common modes of social interaction. An agency is created when one party, the agent, acts on behalf of another party, the principle. The moral problems that can arise from this relationship have become an economical model. Equations have been constructed to lend economist support when calculating potential agency problems. Economists such as KJ Arrow, J Marschak and R Radnor have attempted to measure the monetary models of the agency theory. There are times during business when and individual or company hires another individual or company to act on their behalf. When a person or company, which is acting as the principle have hired a competent person, who acts as the agent, to complete tasks that are too costly or time consuming a agency relationship has been established. Principals may want to hire human resource managers or direct supervisors to ensure that agents are acting best on their behalf. Human resource managers or supervisors can ensure allegiance by creating formal/informal contracts that explicitly explain the principle’s expectations of the agent. Works Cited Bolman, Lee G., Deal, Terrence E. 2008. Reframing Organizations. 4th ed. San Francisco, CA: Jossey-Bass Dimick, David E., Murray, Victor V. 1978. Correlates of substantive policy decisions in Organizations: The case of human resource management. The Academy of Management Journal. 21 (4): 611-623, Dec. 1978 Mithcell, J.B., & Zaidi, Mahmood. 1990. The Economics of Human Resource Management. New York, NY: New case law alert over who pays agent’s commission. 2007. Birmingham Post. 22, Dec. 2007 Ross, Stephen A. 1973. The economic theory of agency: The principal’s problem. The American Economic Review. 63 (2): 134-139, May 1973 Strausz, Roland. 1997. Elevation of monitoring in a principal agent relationship. The Review Economic Studies. 64 (3): 337-357, Nov. 1997 Read More