Implications for Utility Analysis

Utility analysis suggests that human resources policies can have an economically significant impact on business organizations. Confidence in such conclusions, however, requires an accurate estimate of SDy. This article provides a validity check on prevailing subjective methods of SDy estimation by directly estimating SDy from unique field data. Using both simulated and field data, we first illustrate the range of potential bias associated with predictor unreliability y in regression analysis and show how to calculate corrected values. We then discuss the methodological problems of directly estimating SDy with organizational data and provide a range of estimates for SDy. Our direct estimation of SDy yielded values ranging from 74% to 100% of mean salary, which are considerably greater than conventional subjective judgments.