Kristin Fridgeirsdottir Data Analytics for Leaders

Break-Out Session 3b

Winner Plc

Salary Discrimination?

At the last board meeting of Winner Plc., the headquarters of a large multinational company,
the issue was raised that women were being discriminated in the company, in the sense that
the salaries were not the same for male and female executives. A quick analysis of a sample
of 50 employees (of which 24 men and 26 women) revealed that the average salary for men
was about £8,400 higher than for women. This seemed like a considerable difference, so it
was decided that a further analysis of the company salaries was warranted. In the table on the
next page, the salaries of the 50 executives in the sample are given.

Assignment

You are asked to carry out the analysis. The objective is to find out whether there is indeed a
significant difference between the salaries of men and women, and whether the difference is
due to discrimination or whether it is based on another, possibly valid, determining factor.

A note with solutions as well as completed spreadsheets will be posted later on the course
website.

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1. Relationship Salary – Gender ?

Download the Excel file “Winner 1.xlsx”. The Excel file contains the salaries for the sample
of 50 executives in the company. Can you conclude that there is a significant difference
between the salaries of the male and female executives?

Note that you can perform different types of analyses, and check whether they all lead to the
same conclusion (see attached Excel Summary Sheet for tips on implementing the analyses in
Excel):

 Confidence intervals
 Hypothesis testing
 Correlation analysis
 Regression (gender can be formulated as a “dummy” independent variable: gender = 0
if male, gender = 1 if female)

Male employee Salary Female employee Salary

1 £79,400 1 £57,000
2 £67,400 2 £61,300
3 £66,500 3 £62,000
4 £72,600 4 £70,100
5 £63,600 5 £45,600
6 £74,500 6 £71,200
7 £76,400 7 £64,700
8 £67,900 8 £53,800
9 £61,600 9 £60,900
10 £75,500 10 £62,700
11 £64,500 11 £76,400
12 £73,400 12 £57,900
13 £76,100 13 £68,200
14 £72,200 14 £65,800
15 £69,600 15 £60,300
16 £53,100 16 £62,600
17 £65,500 17 £67,000
18 £78,400 18 £62,700
19 £77,600 19 £54,700
20 £82,000 20 £71,400
21 £59,800 21 £50,400
22 £80,800 22 £71,800
23 £74,800 23 £64,100
24 £71,000 24 £70,400
25 £53,100
26 £60,900

Average £71,008 Average £62,577

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2. Relationship Experience – Gender?

At the board meeting, someone raised the issue that there was indeed a substantial difference
between male and female salaries, but that this was attributable to other reasons such as
differences in experience. A questionnaire send out to the 50 executives in the sample reveals
that the average experience of the men is approximately 21 years, whereas the women only
have about 7 years experience on average (see table below).

Download the Excel file “Winner 2.xlsx”. The Excel file contains the years of experience for
the sample of 50 executives in the company.

Based on this evidence, can you conclude that there is a significant difference between the
experience of the male and female executives? Perform similar analyses as in Section 1. Does
your conclusion validate or endanger your conclusion about the difference in male and female
salaries?

Male employee Experience Female employee Experience

1 16 1 2
2 25 2 2
3 15 3 3
4 33 4 16
5 16 5 0
6 19 6 29
7 32 7 3
8 34 8 0
9 1 9 1
10 44 10 2
11 7 11 21
12 14 12 0
13 33 13 8
14 19 14 11
15 24 15 5
16 3 16 11
17 17 17 18
18 19 18 2
19 21 19 0
20 31 20 19
21 6 21 0
22 35 22 15
23 20 23 4
24 23 24 20
25 0
26 0

Average 21.1 Average 7.4

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3. Relationship Salary – Experience ?

Someone at the meeting argues that clearly, a more thorough analysis of the relationship
between salary and experience is required before any conclusion can be drawn about whether
there is any gender-based salary discrimination in the company.

Download the Excel file “Winner 3.xlsx”. The Excel file contains the salary and experience
for the sample of 50 executives in the company. Analyse the relationship between salary and
experience. What can you conclude?

Regression Checklist
1. Visually inspect the data
You can draw a scatter plot using Insert\Scatter.

2. Check correlations between the data

Data\Data Analysis\Correlation computes the correlation between two or more data series.
In Input Range, specify the range with the 2 or more columns of data. In Labels in First
Row, indicate whether you have included labels in the input range or not. In Output
Range, specify a cell where the output can be written.

3. Develop a sensible model

Data\Data Analysis\Regression allows for a regression analysis. In Input Y Range, specify
the dependent variable. In Input X Range, specify the range with the independent
(explanatory) variable(s)  all the independent variables should be in columns next to
each other. In Labels, indicate whether you have included labels in the input range or not.
In Output Range, specify a cell where the output can be written. Also highlight all the
options in Residuals. When you carry out a regression analysis, write down the obtained
equation, interpret it (“What does it mean?”) and see whether it makes sense.

4. Check the goodness-of-fit

Evaluate adjusted R2

5. Examine significance of variables

Evaluate t-values or p-values, and remove insignificant variables

6. Examine whether the model is well-specified

Inspect the Line Fit and Residual plots.

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4. Relationship Salary – Gender - Experience ?

Download the Excel file “Winner 4.xlsx”. The Excel file contains the gender, salary and
experience for the sample of 50 executives in the company.

Extend your analysis of Section 3 to investigate whether there is salary discrimination based
on gender or not.

Regression Checklist Continued

7. Multiple Regression:
Check for multicollinearity (i.e. correlated independent variables), and remove correlated
independent variables from the model.
8. Competing Models:
Assess and compare different models to see which one is most sensible and fits the data
best.

5. Improving the Model

Again at the meeting, someone was looking at the results of the analysis of salary versus
experience, and said that it was to be expected that an employee with more experience than
another employee would have a higher salary. However, he argued that the difference in
salary between two people with 2 and 4 years experience would be higher than the difference
in salary between two people with 26 and 28 years experience!

Can you find any indication in the results reported in section 4 that this is the case? If yes,
how can you modify your analysis to take this into account?

6. Additional Thoughts

Do you have any additional thoughts on whether there might be a gender disadvantage in the
firm or not?

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 Excel Summary Sheet
Excel has a number of built-in functions that are useful for analysing data:
– Average(cell range): computes the average of the values in the range;
– Correl(cell range 1, cell range 2): computes the correlation between the two ranges.

Excel also has built-in tools useful for summarising and analysing data:
– Data\Data Analysis\Descriptive Statistics gives statistical information about data. In Input Range,
specify the data you want to analyse by selecting it using your mouse. In Labels in First Row,
indicate whether you have included labels in the input range or not. In Output Range, specify a
cell where the output can be written (see that you have enough space in the spreadsheet below and
to the right of that cell). Also select Summary Statistics and Confidence Level for Mean. The
output can then be formatted as you please to make it more legible (e.g. by adding titles or
formatting column width).
– Data\Data Analysis\ t-Test: Two-Sample Assuming Unequal Variances gives the output of
hypothesis testing on the means of two samples. In Variable 1 range and Variable 2 range specify
the two samples separately. We usually choose Hypothesized mean difference as 0 since we are
usually checking if the two samples have the same mean or not. Check labels if you have included
labels in the selected ranges. Alpha is the significance level, usually set as 0.05 (refers to 95%
confidence). Then you have several option concerning where the output is generated.
– Data\Data Analysis\Correlation computes the correlation between two or more data series. In
Input Range, specify the range with the 2 or more columns of data. In Labels in First Row,
indicate whether you have included labels in the input range or not. In Output Range, specify a
cell where the output can be written.
– Data\Data Analysis\Regression allows for a regression analysis. In Input Y Range, specify the
dependent variable. In Input X Range, specify the range with the explanatory variable(s)  all the
explanatory variables should be in columns next to each other. In Labels, indicate whether you
have included labels in the input range or not. In Output Range, specify a cell where the output
can be written. Also highlight all the options in Residuals. When you carry out a regression
analysis, write down the obtained equation, interpret it (“What does it mean?”) and evaluate it by
checking the model statistics (R2, t-values, p-values) and by inspecting the Line Fit and Residual
plots.