In most firms, the entire issue of compensation falls into the domain of the human resources manager. The manager must ensure that the method used to determine compensations contributes to the firm's objectives. Moreover, the firm needs to ensure that discrimination or bias of any kind is not a factor. Another function of the personnel manager is to develop severance packages for employees whose services are no longer needed because of downsizing or merger. The size and nature of severance is rarely part of any working agreement and must be determined by a variety of factors. For example, when one company buys another company, it is not unusual that some workers are terminated. The severance benefits offered to the laid-off workers are often the subject of dispute. Suppose that the Laurier Company recently bought the Western Company and subsequently terminated 20 of Western's employees. As part of the buyout agreement, it was promised that the severance packages offered to the former Western employees would be equivalent to those offered to Laurier employees who had been terminated in the past year. Thirty-six year old Bill Smith, a Western employee for the last 10 years, earning $32K per year, was one of those let go. His severance package included an offer of 5 week's severance pay. Bill complained that this offer was less than that offered to Laurier's employees when they were laid off, in contravention of the buyout agreement. As a statistician, you are brought in to settle the dispute. You are told that the severance is determined by age, length of service and pay.
Assignment: Discuss how you would go about confirming or disputing Bill's accusation. What statistical method would you use? Do the listed factors of severance pay seem adequate? Why or why not? If you could, what other factors would you recommend using to determine severance pay? Next, research current severance packages online, and report what factors are used by organizations to determine severance pay. Do they seem adequate and logical? Why or why not