Premier Baking Ltd. has recently appointed a new CEO to run its bakery business, which supplies to supermarkets and restaurants. The new CEO has instituted a new compensation policy and dropped the earlier incentive scheme, which was based on overall production achieved within the targeted time limits and quality standards. The quality control manager has now reported that there is a significant increase in production delays and delivery mix-up leading to an increasing number of customer complaints.

Explain how the delays and delivery errors could represent a case of agency costs. How could Premier Bakery counter these agency costs?