The R2 statistic tells us how well the variation in the company's valuation of jobs based on job evaluation points explains the variation in market pay rates from the compensation survey. What does it mean when the R2 = 1?
A) All of the variation in market pay can be explained by the company's job structure.
B) None of the variation in market pay can be explained by the company's job structure.
C) All of the variation in market pay can be explained by the company's external pay rates.
D) All of the variation in market pay can be explained by the benchmark rates.
Question 2
Compensation professionals in the XYZ Company use regression analysis to determine the pay rates of its marketing professionals. There are 4 different marketing job titles in the XYZ Company.
Compensation professionals use job evaluation points assigned to each marketing job title and a salary survey data. In other words, they regress job evaluation points on the salary data to indicate the amount of variation in market pay rates that can be explained by a company's job structure. Which of the following best describes this amount of variation when the R2 value turns out to be 0.85?
A) All of the variation in market pay
B) None of the variation in market pay
C) A large amount of the variation in market pay
D) A small amount of the variation in market pay
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