Does Mentor's Ability Matter for Compensation?

Thursday, May 9, 2013 ( 2:00 pm to 3:00 pm )

Location: Babbio 104

Does Mentor's Ability Matter for Compensation?

Georgios Farfaras, Ph.D. Temple University

 

ABSTRACT

We use an agency model with moral hazard and adverse selection to study the effect of 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 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.

 

BIOGRAPHY
Mr. Georgios Farfaras is Lecturer of Accounting and Economics at the Fox School of Business at Temple University and a PhD candidate at the State University of New York at Buffalo. He holds an M.A in Economics and an M.A in Applied Mathematics both from the State University of New York at Buffalo.

Mr. Farfaras has taught at the undergraduate and graduate programs in both campuses of Temple University, in Philadelphia and Tokyo, Japan. His research covers a broad range of topics in managerial accounting, financial accounting and corporate governance and has been presented in national and international conferences. His research interests include incentive contracts, performance measurement and evaluation, executives’ compensation, mergers, acquisitions and strategic alliances of firms.