Much interest in management circles has focused on how employee compensation is related...

Much interest in management circles has focused on how employee compensation is related to various company characteristics. The article “Determinants of R and D Compensation Strategies” (Personnel Psychol- ogy [1984]: 635– 650) proposed a quantitative scale for y= 5 base salary for employees of high-tech companies. The following estimated multiple regression equation was then presented:

a. There were n = 33 firms in the sample and R² = .69. Is the fitted model useful?

b. Predict base compensation for a growth stage firm with sales volume $50 million, profitability 8%, and attrition rate 12%.

c. The estimated standard deviations for the coefficient estimates were .064, .141, .014, and .005 for b₁, b₂, b₃, and b₄ respectively. Should any of the predictors be deleted from the model? Explain.

d. β2 is the difference between average base compensation for growth stage and mature stage firms when all other predictors are held fixed. Use the information

in Part (c) to calculate a 95% confidence interval for β₂.