The paper examines the relationship between risk and incentives in agency theory, challenging the traditional view that higher risk leads to lower incentive pay. It argues that uncertainty affects incentives through the delegation of responsibility to employees. When situations are uncertain, firms delegate more responsibility to workers but base compensation on observed output, leading to a positive correlation between uncertainty and incentive pay. This contrasts with the standard model that predicts a negative tradeoff. Empirical evidence from various occupations, including executives, sharecroppers, franchisees, and salesforce workers, suggests a positive relationship between uncertainty and incentive provision, contrary to the traditional negative tradeoff. The paper explains this by noting that in uncertain environments, firms delegate decision-making to workers but use output-based pay to monitor performance, as they lack the ability to monitor inputs effectively. The paper also discusses how complexity and uncertainty influence incentive pay. In complex jobs, it is harder to monitor performance, making output-based contracts more desirable. Additionally, the paper explores extensions of the model, including partial delegation, communication between principals and agents, symmetric information, and other forms of uncertainty. These extensions support the idea that uncertainty and incentive pay are positively correlated, with output-based contracts being more common in uncertain environments. The findings suggest that the traditional negative tradeoff between risk and incentives is not always valid, and that uncertainty plays a crucial role in shaping incentive structures.The paper examines the relationship between risk and incentives in agency theory, challenging the traditional view that higher risk leads to lower incentive pay. It argues that uncertainty affects incentives through the delegation of responsibility to employees. When situations are uncertain, firms delegate more responsibility to workers but base compensation on observed output, leading to a positive correlation between uncertainty and incentive pay. This contrasts with the standard model that predicts a negative tradeoff. Empirical evidence from various occupations, including executives, sharecroppers, franchisees, and salesforce workers, suggests a positive relationship between uncertainty and incentive provision, contrary to the traditional negative tradeoff. The paper explains this by noting that in uncertain environments, firms delegate decision-making to workers but use output-based pay to monitor performance, as they lack the ability to monitor inputs effectively. The paper also discusses how complexity and uncertainty influence incentive pay. In complex jobs, it is harder to monitor performance, making output-based contracts more desirable. Additionally, the paper explores extensions of the model, including partial delegation, communication between principals and agents, symmetric information, and other forms of uncertainty. These extensions support the idea that uncertainty and incentive pay are positively correlated, with output-based contracts being more common in uncertain environments. The findings suggest that the traditional negative tradeoff between risk and incentives is not always valid, and that uncertainty plays a crucial role in shaping incentive structures.