Corporate Governance quiz

[CFASniper]

Nucking Futs and Dencil Pick, two board members of Stink Inc., are engaged in a heated argument about the compensation policy of the firm:
Nucking Futs: Implicit and explicit incentives are typically viewed as substitutes; the greater the implicit incentive, such as threat of firing, the less the need for explicit incentives, such as salary and bonus.
Dencil Pick: There are times, however, when the two types of incentives can be viewed as complements.
A. Futs is correct, Pick is incorrect
B. Futs is correct, Pick is correct
C. Futs is incorrect, Pick is incorrect

 

[abushey31]

Ah, B I guess…was thinking C, but that can’t be right.

 

[mcap11]

B for the win, Alex

 

[amg]

Its B. just finished studying this material today.

 

[Paraguay]

B, depending on the situation can be viewed as both.

 

[deriv108]

B.
Can anyone give an example of complements? Thanks.

 

[goodman2011]

option and bonus complement

 

[cookthebooks]

ss12 pg 304
complements depending on the intensity of heterogeneity of fiscal constraints
clear as mud, but i think what its saying is that when you are in a tough spot you will be forced to accept stronger implicit and explicit (dis)incentives

 

[Oal29]

B. I wonder if Bpdulog is just playing game here. -:0)

 

[pfcfaataf]

deriv108 Wrote:
——————————————————-
> B.
>
> Can anyone give an example of complements? Thanks.
higher the salary, higher the fear of being fired?

 

[goodman2011]

no the logic is the more you fear , the less salary they need to pay you

 

[goodman2011]

complements mean you need balance short term and long term benefits using bonus and option

 

[pfcfaataf]

goodman2011 Wrote:
——————————————————-
> no the logic is the more you fear , the less
> salary they need to pay you
this is more substitute example, see page 303 V4, last paragraph,
to your second comment: bonus and option are both explicit incetives, we are talking about explicit and implicit being complements….

 

[CFASniper]

If an exec is not too confident in his abilities to perform, then implicit incentive (e.g. fear of getting fired) will be sufficient and there will be no need for an explicit incentive such as performance bonus.
On the other hand, if the manager is really bullish in his abilities, he/she may be willing to accept a high level of performance bonus with the chance of getting fired for under-performance. In other words, explicit and implicit incentives act as complements.

 

[elixirsix]

haha “stink Inc”