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- Jun 18, 2026
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From SS12 Corporate Governance (Schweser Book 3 Page 183)
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if a manager is doing well then then they are likely to accept a high probability of being fired for increased compensation. This is referred to as a “substitute incentive”
if a manager is not doing well then they are likely to accept a low level of pay as well as high probability of being fired. This is referred to as a “complement” incentive.
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I am confused by this. I would have thought that a low probability of being fired is an incentive which can be substituted for compensation e.g. the weak manager. This would seem to mirror the description that “the stronger the implicit incentive, the lower is the need for explicit incentives”
Any ideas?
——————————————————————————————————————
if a manager is doing well then then they are likely to accept a high probability of being fired for increased compensation. This is referred to as a “substitute incentive”
if a manager is not doing well then they are likely to accept a low level of pay as well as high probability of being fired. This is referred to as a “complement” incentive.
——————————————————————————————————————–
I am confused by this. I would have thought that a low probability of being fired is an incentive which can be substituted for compensation e.g. the weak manager. This would seem to mirror the description that “the stronger the implicit incentive, the lower is the need for explicit incentives”
Any ideas?