# D&Y: Starting Salaries Situation Presentation

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Updated: Jun 22nd, 2022

## Introduction

• People work for money
• Because, following the hierarchy of needs, human beings must first of all be able to satisfy physiological needs for food, shelter, clothing and mobility.
• Money also buys status, group belongingness, a degree of security and love (Remember the last time you shopped for the love of your life?)

# Descriptives on Starting Salaries

• Regardless of whether they stay or not, systems analysts typically receive starting wages of just \$ 37,986.36.
• This is 15% lower than the aforementioned industry benchmark.
• Just one in six Systems Analysts at D & Y receive starting pay ≥\$40,000.
• And yet, nearly half stayed three or more years.

Contrary to the intuitive understanding about the relationship between pay and loyalty, Figure 1 suggests that quite the reverse is true.

# Hypothesis Test versus Industry-Standard Salaries

A one-tailed t-test was performed owing to the nature of the question asked, “Is D&Y offering less than the industry standard of \$40K to the employees that don’t stay for at least 3 years?” Given mean starting pay of \$ 38,555.88 for those who had left before they had been with D & Y for three years, variance of 3,561,328, n = 34, and a null hypothesis of there being no difference at all versus the population mean of \$40,000., one derives a t statistic of -4.46, p < 0.00071, and tCRIT of 1.69.

## The Relationship Between the Two Variables

• There seems to be inverse relationship between length of stay and pay.
• Those who are paid less stay longer.
• Assuming starting pay is based on merit, one may theorize that those given lower salary to start with are not as attractive to employers who poach.
• We see from the computed r2 value of the trend line that salary explains just 17.7% of the variance.

## The Situation at D&Y

• System analysts typically receive starting wages of just 37,986.63.
• This is 15% lower of the 40,000.
• Just one in six Systems Analysts at D&Y receive starting pay of 40,000.
• Nearly half have stayed three or more years.

## The Hypothesis Test

• Is D&Y offering less than the industry standard of \$40K to the employees that don’t stay for at least 3 years?
• Number of employees in the D&Y= 66.
• People who left = 34.
• The average salary for each one = 38,555.88.
• The variance between people who left and stayed = 3,561,328.

## Rationale for the One-Tailed T-Test

• Assigns all alpha to testing the statistical significance in the one direction of interest.
• Tests for the probability of the relationship in one direction.
• Ignores the other direction of the normal curve.
• H0 : X bar = μ.
• H0 : There is no difference between the industry standard of \$40,000 and the average \$38,555 salary of Systems Analysts who leave before three years are up.

## The Significance Test Visualized

• Only the probability that X bar is significantly lower than μ is being tested.
• Critical p value 0.05.

## Calculate T Value

• Reject H0 if (\$40,000 – 38,556)/(s/√n) is larger than can be explained by sampling error at α = 0.05.
• Since standard deviation = s/√n = 1,887.15…
• Calculated Z value = 0.76.
• Z = 0.76 < 1.96 required at α = 0.05.

## The Hypothesis Test

• Asking the question as to whether D & Y pays lower than the industry average
• Means posing a one-tailed t test in the positive direction
• The result of 1.69 for tCRIT and p < 0.0001 means that tOBS is at least one standard deviation lower than tCRIT, that such a large (negative) difference vis-à-vis μ, the population mean, could not have occurred by chance at α = 0.05.
• We reject the null hypothesis and draw the…
• Conclusion: D & Y really does pay its Systems Analysts who leave before three years are up less than the industry norm.

## Recommendations

• This preliminary statistical analysis suggests that wages below the industry standard do not materially explain turnover among D & Y Systems Analysts.
• Lack of loyalty is more likely explained by leadership, recognition and self-esteem, team factors, career paths, and the organizational climate as a whole.
• Obviously, D & Y would do well to address these other factors if it wishes to come to grips with employee turnover rate.
• At the end of the day, equity and the effect of mediocre pay on self-esteem mean D & Y also needs to address the pay gap anyway.
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