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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?)
Introduction

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.

Scattergram of starting pay for systems analysis that stayed less than 3 years

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 Relationship Between the Two Variables Retaining system analists at D&Y

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 Situation at D&Y

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.
The Hypothesis Test

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.
Rationale for the One-Tailed T-Test

The Significance Test Visualized

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

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.
Calculate T Value

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.
The Hypothesis Test

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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