Examine the benefits and cons of employee pay in the form of salary and commission, or incentive pay, in terms of the moral hazard problem

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The problem of moral hazard may be present when employees are paid a straight salary. No matter how well or poor the employees performance, they are guaranteed a certain pay. Incentive pay eliminates the moral hazard problem by paying individuals based on their performance. The more productive the worker is the higher the pay. While commission, or incentive based pay, eliminates the moral hazard problem, other issues may arise such as, employees cutting corners or using other methods to appear more productive.