Roflnadal

Thus, a tightly financially constrained manager will accept both a lower level of performance-based rewards and a smaller probability of keeping her job after a poor performance, where the probability of turnover is determined by the composition of the board, the presence of takeover defenses, the specification of termination rights (in the case of venture capital or alliance financing) and other contractual arrangements. The heterogeneity in the intensity of financial constraints then predicts a positive comovement of turnover under poor per- formance and low-powered incentives. Implicit and explicit incentives then appear to be complements in the sample.
(Level III Volume 4 Fixed Income and Equity Portfolio Management , 4th Edition. Pearson Learning Solutions p. 304).
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Analyze_This

It seems to come down to the definition of strong or not strong implicit incentives. Explicit incentives easy to figure out. The second situation seems exactly like the first however.

jmh530

I think that they're saying that it's a spectrum. With very weak implicit incentives, the two are complements. With very strong implicit incentives, the two are substitutes. So as you move along he spectrum from weak implicit incentives to strong implicit incentives, you move from complements to substitutes. So in their examples, the strength of the IMPLICIT incentives determined the degree of substitutability. You can probably argue the same about the strength of EXPLICIT incentives.