As an employer, I know that even the most highly effective employees will only actually work for maybe 6 hours per day, regardless of distractions from the internet, cell phones, other employees, etc. My position is that internet use is to be limited, especially when we have a significant current workload. While we have a very casual environment with flexibility, we also have a lot of work to do ( in a client service indistry).
All of them know that I have access to all the sites they visit and emails that they send/ receive. While this may sound harsh, I'm the one who takes all the risk of the business and who provided all of the equity to start and maintain the firm. Fortunately, I spend very little time in employee oversight of this nature; good thing, because I don't have time.
Additionally, we share profits through a year end plan as well as a 401k retirement plan. Do I expect a focused effort day in and day out? Yes, and the rewards can be siginificant. That's why it's called work, not play; the paycheck states "paid in full" and I expect a return on my investment.