Well, difficult and uncomfortable feeling is natural however the same goes for every person of your job role. The IT managers are supposed to keep a check on how the company’s electronic assets are utilized.
The same happened with me some couple of years back when I was working at a software company as IT supervisor and my boss asked me to provide him a complete browsing history of an employee who was a very close friend of mine. Despite my unwillingness to do so, I had to do the same.
I would suggest you to block specific websites for all the employees. This threadthread would give you an idea about how to do so. Besides, with smartphones getting more popular than laptops for internet browsing and social networking, secretly installing cellphone spying apps like xnspy etc. on employees’ smartphones can open up doors of endless possibilities to track and monitor employees’ activities.
This is what my current boss is up to. However, I would strongly suggest you to first check with the laws in your jurisdiction.