The Radford Global Compensation Database (RGCD) has a new feature for the October release- the Executive Regression data generator tool. Aon has been employing regression analysis for many years in our advisory practice, and we have created a tool that allows us to bring that capability to our RGCD platform.
Regression analysis is a statistical technique for estimating market compensation levels and is typically used when like comparisons of companies are unavailable. For example, if a company is twelve billion dollars in size, and they want to know the executive pay range for organizations similar in revenue to them, they would look to the RGCD to find the appropriate comparison. In some cases, however, this comparison is unavailable- either companies of similar size are in a different industry, or the only available peer companies are much smaller or much bigger than the company in question.
We solve this problem by employing regression analysis to help estimate expected compensation. To do this, we take two data points-Total Cash Compensation and Total Sales-and plot them on a graph with “Total Cash Compensation” on the Y axis, and “Total Sales” sales on the X axis. When we plot data from numerous companies on the graph and draw a line to try to best represent the average, we’ve created what’s called a “Line of Best Fit”. See the graph below:
This line can be represented by a formula. We then deploy that formula in the Executive Regression tool to estimate what an executive’s pay would be if a user knows a company’s overall revenue. There are limits to the tool, as seen at the very beginning of the graph as well as the end of the graph. Because of this, we recommend usage of Executive Regression only if a company has at least one billion dollars in revenue.
The tool works for any industry and any position, and the output generated is formatted for easy loading into Market Pay. We hope you leverage the Executive Regression tool for your next compensation project!