What term describes the situation where an employee makes decisions that may not align with the employer's interests?

The principal-agent problem describes a scenario in which an employee (the agent) may make decisions that do not necessarily align with the best interests of the employer (the principal). This issue arises primarily because the agent has more knowledge and information regarding their actions and potential outcomes than the principal does, leading to situations where the agent may prioritize their own interests over those of the employer.

In many workplaces, the goals of employees can diverge from the goals of the organization due to differing incentives, risk tolerances, or access to information. As a result, the principal-agent problem becomes a critical area of study in business ethics and management, underscoring the importance of governance structures that align the interests of both parties.

The other terms mentioned reflect different concepts. For instance, a conflict of interest specifically refers to situations where an individual's personal interests could improperly influence their responsibilities and actions; agency theory is a broader framework that examines the relationship between principals and agents, while employment at will describes the legal environment where either the employer or employee can terminate employment without cause. However, it is the principal-agent problem that most accurately captures the essence of decision-making misalignment between employees and their employers.