The Diamond Jubilee is a floating riverboat casino that operates on the Mississippi River. The casino is open 24 hours daily and features 675 slot machines, 25 blackjack tables, 8 poker tables, 3 craps tables, and 2 roulette tables. For motivational purposes, the Diamond Jubilee links some of its general manager’s compensation to the casino’s profitability. Specifically, the riverboat’s general manager, Sapphire Sally, receives a monthly bonus equal to 5% of the casino’s pre-tax profit.

Required:

Assume that you are the managing partner in the partnership that owns the Diamond Jubilee. Given Sally’s direct financial interest in maximizing casino profit, would you feel comfortable delegating all decisions to Sally and giving her complete control of the casino? In other words, does the bonus contract fully align Sally’s interests with the partnership’s interests?