Statistical Analysis for Business

Dear Students,

Case reports are a great practice for the real business world—taking a problem and not only solving it, but defending your solutions and recommendations. Some guidelines for Homework2:

1. Plan your presentation as though I am the CEO and you are the consultants I hired to investigate the issue. Pretend that Sally and am very concerned about this potential discriminatory pay problem in my company. I also am not a statistician, but am analytical and very smart; therefore, I will understand the details of how you arrived at your conclusion.

2. Submit your report in MSWORD format.

3. As part of your analysis, you should complete the following tasks:

Identified the analysis questions

Converted analysis questions into statistical questions/Analytical procedure

Performed appropriate descriptive statistics

Discussed, recorded handling of unusual data

Applied formal analysis procedures (using regression analysis and tools we learned this semester in Excel and R)

Developed conclusion

Discussed of Outcome/Future

Attached supporting Graphs and Charts

Data: Homework2_Case

Case: next page

PRODUCTION SYSTEMS INC.

Development of a Salary Model

25.1 INTRODUCTION

Sally Parsons, president of Production Systems Inc., has asked you to assist in analyzing the company's salary data. She has recently received a series of complaints that women employees are receiving lower wages for comparable jobs. The complaints came as a surprise to Sally because she thought salary increases were based on experience and performance. Sally was aware that the average wages of women staff were less overall than those of men. However, she also knew that women staff had less experience and thus would be expected to have lower wages. Given the complaints Sally understands that she must have objective information.

Production Systems Inc. is a regional computer systems development company that specializes in work with banks and insurance companies. The company started as a service department for a regional accounting company in the 1960s. A few of the current employees actually came from the account­ ing company. In the early 1970s, Production Systems Inc. became an inde­ pendent company. The company has been quite successful, experiencing steady growth over its entire life. Employment has not grown as rapidly as have the company's total billings because of productivity innovations intro­ duced during the past ten years.

The company has tended to hire experienced professionals with masters degrees in technical fields including business, management science, com­ puter science, engineering, economics, and mathematics. Most of the employees have come with significant experience. The youngest employee in the professional group is 29, and the most senior is 65. Experience with Production Systems varies over a wide range, with one-fourth having less than seven years and one-fourth having more than 22 years. Most of the women employees have less experience with the company.

The professional staff has only three levels: systems analyst, team systems analyst, and project systems an'alyst. Salary ranges are quite wide within each of the levels. Project systems analyst is the highest level, followed by team systems analyst. Promotion to the higher ranks is awarded by a committee of

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126 CASE 25 Production Systems Inc.

project systems analysts, and advancement to each level usually requires a minimum of six years' experience and significant project work. In general, persons at the higher levels are more productive and tend to direct projects. It is possible, however, for a group that includes several project systems ana­ lysts to be directed by a team systems analyst. For every project under con­ tract, a team of the best available people is created to carry out the work. It is also well known that some persons at the highest level are less productive than others at lower levels. Thus higher status and salary is a reward for past performance and not a reliable measure of present contribution.

Salary adjustments are sometimes made to recognize certain specialty skills that demand a high price in the labor market. Persons who work in database systems programming have unique skills that are highly sought by other companies. Another special category is technical systems developers­ people who prepare specialized high-performance software for key parts of large systems. People with either of these skills are in great demand, so they must be paid a premium if they are to be retained. Such specialists work at all three professional staff levels, depending on their experience with the company, but the company has not provided premium salaries merely by pro­ moting the specialists. The personnel policy has been to base promotions on a wide range of work and project management skills. Special skills are com­ pensated by a separate adjustment. Because promotions to higher levels are related to experience, the company has sought to avoid confusing levels and specialized skills that have a market premium.

25.2 PROBLEM ANALYSIS

Your project analysis begins with a series of meeting you have with Sally Parsons and the director of human resources, Gilbert Chatfield. Both Sally and Gilbert indicate that wages tend to increase with experience in the com­ pany. The managers conduct an annual employee review, which relies heav­ ily on input from project leaders who are directing teams at various remote locations. Project leaders shift as projects are completed and new teams are assigned. Thus, obtaining consistent information to provide the basis for a high-quality employee evaluation is difficult. Most of the employees at Production Systems enjoy their independence and challenging work; salary levels have not been a major concern for most employees. Certain people are recognized as strong performers, and their increases and promotions are gen­ erally accepted by the professional staff.

In recent years, however, concerns have been raised about the fairness of the system of awarding salary increases. The complaint by women employ­ ees is the most serious, but other complaints have been made over the past

CASE 25 Production Systems Inc. 127

VARIABLE NAMES IN THE PRODSYS DATA FILE

VARIABLE NUMBER	VARIABLE NAME	NUMBER OF OBSERVATIONS	VARIABLE DESCRIPTIONS
1	Age	150	Age of the employee
2	Yearsexp	150	Years of experience with Production Systems
3	Yearslv2	150	Number of years as a team systems analyst
4	Yearslv3	150	Number of years as a project systems analyst
5	Gender	150	Gender
6	Salary	150	Annual salary (in dollars)
7	Speclty1	150	Specialty: 1 = Database systems development skill; 0 = else
8	Speclty2	150	Specialty: 1 = Technical systems development skill; 0 = else

several years. In view of these concerns, you recommend that a salary pre­ diction model be developed. This model would use data based on the current salaries paid to professional staff and important variables that define the experience and skill levels of the staff. Such a model would indicate the effect of various factors that contribute to salary level, and it would identify persons whose salaries are above and below the predicted average salary. The model could also be used to determine whether an employee's gender predicts a salary that is higher or lower than would be expected on the basis of experi­ ence and qualifications.

After some discussion, Sally and Gilbert agree that this model should be developed. It would be useful for answering the present complaint, and it would provide a tool for reviewing the complete professional staff salary structure. After reviewing the employee data records, you select a candidate set of variables for the model development. These variables, which are con­ tained in a file named Prodsys, are described in Table 25.1. To protect the confidentiality of each employee's salary record, there is no variable to iden­ tify individual employees in this file. At the completion of the study, you will provide Gilbert with a list of employees who are substantially below or above the standard predicted by the model. Since he has the identification key for each employee and has access to other performance information, he can decide whether certain persons' salaries should actually be above or below the standard.