Does Mentor's Ability Matter for Compensation?

• In Event: Accounting, Behavior and Organizations 1

Abstract

We use an agency model with moral hazard and adverse selection to study the effect of a mentor's ability on the compensation of his mentees. An agent who is trained by a mentor of higher ability receives valuable experience that increases not only his productivity but also his output sensitivity to effort. In our model's equilibrium, the greater productivity translates into higher total compensation, and the greater
output sensitivity of effort leads to stronger incentives. We test these predictions by using data from college football coaches and we find strong empirical support for our hypotheses. Football coaches who have previously worked as assistants to head coaches of superior ability, are on average more productive and earn higher total compensation. Furthermore, their compensation contracts include stronger incentives in the form of bonus payments, an outcome consistent with our model's predictions.

Authors

• Georgios Farfaras, University at Buffalo, SUNY

• Ivan Stetsyuk, Temple University