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Statistics for Compensation

A practical guide teaching compensation and HR professionals the descriptive statistical and modeling techniques needed to analyze pay data and make sound organizational decisions.

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What it’s about

Statistics for Compensation demystifies the numbers behind pay decisions, giving compensation and human resources professionals a hands-on toolkit of descriptive statistics and model-building techniques grounded in real-world case studies from a fictitious company, BPD. Author John H. Davis draws on decades of practitioner, consulting, and teaching experience to walk readers from basic notions of percent and compound interest through frequency distributions, measures of location and variability, and into powerful regression-based market models—linear, exponential, maturity curve, power, and multiple linear regression. The book's central message is that statistics do not simply answer questions; they raise issues, challenge assumptions, and require aggressive inquisitiveness because behind every data point there is a story. With worked examples, practice problems, and a disciplined five-step model-building framework, the book equips professionals to identify market positions, build salary structures, set salary increase budgets, and defend recommendations with data—all in service of helping organizations attract, retain, motivate, and align the people they need.

The through-line

Who it’s for: A compensation or human resources professional responsible for pay who wants to make sound, data-backed decisions and confidently defend recommendations to executives.
The problem: They must analyze internal and external pay data to determine market positions, build salary structures, and set salary increase budgets—often under time pressure and uncertainty. They feel intimidated by statistics and worried that they lack the analytical competence to prove recommendations with data when executives say 'prove it to us.'
The plan: Learn the basic notions—percent, compound interest, and how numbers raise issues.
Summarize and describe data with frequency distributions, measures of location, and measures of variability.
Follow the five-step model-building process to relate pay to grade, experience, or company size.
Apply market models to identify market position, build salary structures, and set salary increase budgets.
Use multiple linear regression to uncover the real drivers of pay and other outcomes while checking assumptions.
The payoff: The professional confidently makes data-backed recommendations, defends them to executives, and helps the organization attract, retain, motivate, and align the right people.

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Additional reading

Human Resource Champions · David Ulrich
The preface references this as a landmark book in the effort to define HR core competencies and the role of HR as a strategic business partner.
The Human Side of the Enterprise · Douglas McGregor
Mentioned in the preface as a key influence in shifting the perspective from 'personnel administration' to 'human resource management,' providing historical context for the evolution of the HR function.
The Compensation Handbook, A State-of-the-Art Guide to Compensation and Design · Berger, L.A., and D.R. Berger, editors
This book provides a deep dive into the practical application of finance and accounting; a broader handbook like this one would provide context on the design elements (internal/external equity) that this book deliberately does not cover in detail.
How to Be a Star at Work: 9 Breakthrough Strategies You Need to Succeed · Robert E. Kelley
Referenced to support the idea that a key trait of high performers is their ability to leverage learning opportunities, which is a core tenet of the book's framework for excelling as a compensation professional.
Average Is Over: Powering America Beyond the Age of the Great Stagnation · Tyler Cowen
Cited to highlight the increasing economic value of individuals whose skills are complementary to computers, underscoring the book's argument that 'soft skills' and strategic thinking are becoming critical for compensation professionals in a data-driven world.
Drive: The Surprising Truth about What Motivates Us · Daniel H. Pink
Cited as a contrasting viewpoint that questions the efficacy of financial incentives, highlighting the importance of autonomy, mastery, and purpose. This is relevant to the book's deep focus on designing effective incentive systems.
Creative Destruction: Why Companies That Are Built to Last Underperform the Market · Sarah Kaplan and Richard N. Foster
Referenced to illustrate the increasing pace of change and business complexity, which provides the context for why compensation professionals need to be more strategic and business-savvy.
Beyond HR: The New Science of Human Capital · John W. Boudreau and Peter M. Ramstad
Listed as an additional resource to provide a deeper dive into the strategic management of human capital, which is a central theme of the handbook.
Pay and organizational effectiveness: A psychological view · Lawler, E. E., III (1971)
This is cited as a foundational text that comprehensively applied psychological theories, particularly expectancy and equity theory, to understand how pay systems affect employee motivation and behavior.
Economics, organization & management · Milgrom, P., & Roberts, J. (1992)
Serves as a key reference for the 'new economics of personnel,' particularly agency theory. The book uses its concepts to frame decisions about behavior- vs. outcome-based contracts and the challenges of incentive design.