This paper studies a simple but sharp question about incentives: when a manager chooses a coworker and then competes with that coworker for pay, how should the firm set the prize and any head start (or handicap) given to the manager? The authors build a theoretical model in which a profit‑maximizing principal chooses a prize share—a portion of total output used as the reward—and a head start that shifts the comparison in favor or against the manager. The competition follows a Lazear–Rosen–style tournament, where pay depends on relative output.

In the model the manager first hires a new coworker from a pool of candidates. After hiring, the manager and the hired coworker produce output and compare results for the prize. The head start is an explicit advantage in the output comparison granted to the manager. It can be positive (an advantage) or negative (a disadvantage). The principal sets both the size of the prize share and the size of the head start to maximize profit.

The authors show that the head start changes outcomes through three channels. First, it encourages the manager to work harder when he has a realistic chance to win. Second, it discourages the new hire from working as hard, because the hire faces a tougher matchup. Third, giving a head start can change whom the manager decides to hire: a larger head start can induce the manager to pick a stronger candidate from the pool. These three effects work in different directions for total output and profit.

A central finding is a balance across those channels. The positive effect through better hires dominates the discouragement effect up to the point where the manager is already hiring the strongest candidate available. Once the strongest candidate is being hired, any further increase in the head start tends to discourage the hire more than it encourages the manager. From this logic, the optimal contract in the model gives a head start that is just large enough to induce the manager to hire the strongest candidate, but no larger.