Firms must design the compensation plan to induce workers to operate in the firms best interest and put forth a certain level of output that maximizes the firms profits. However, since the interest of workers and their employer do not always align and asymmetric information, where one (worker/ employer) does not know some relevant facts about the other, make the compensation plan difficult to establish. Here, the principal-agent theory is used as the guiding framework when aligning incentives with the employees effort to obtain the efficient level of output for the firm. For example, a manager may want a certain level of output from an employee but does not know the capabilities of the employee in the presence of imperfect monitoring, and to achieve the best outcome, an optimal scheme of incentive may be set to motivate the worker to increase their productivity.