Which of the Following Explains Why a Compensation Contract Designed

Multiple Choice

Which of the following explains why a compensation contract designed to combat employee moral hazard that features strong incentives might be worse than having no incentive scheme at all?

A) Generally, an employee's effort and ability are the only two determinants of the employee's performance.
B) Employers are generally pretty skilled at measuring the aspects of job performance in which they are the most interested.
C) Workers may choose to concentrate only on the most measurable aspects of job performance at the expense at those aspects that are less easily measured.
D) Compensation contracts with strong incentives are never efficient in the presence of moral hazard.