Formula:

Offer W₁ in year 1; W₂ in year 2 only to those retained W₁ < W₂

• Value of E-types applying = W₁ + qW₂ + (1q)W_E
• Alternative for E-types = 2W_E
• Value of D-types applying = W₁ + (1-q)W₂+ qW_D
• Alternative for D-types = 2W_D

38. HR Analytics, Inc. has invested in its candidate screening process over the last three years for financial analysts. This company can assess whether to promote employees on probation accurately 80% of the time. But 20% of the time the company still inaccurately assesses employees on probation by terminating an employee who fits successfully in the job or retaining post probation an employee who does not fit well in the job.

The W_D for financial analysts is $32,000 per year. The W_E for financial analysts is $46,000. HR Analytics, Inc. is considering which W₁ and W₂ will encourage Es to apply while discouraging Ds from applying. Out of the three options below, which is the best salary structure for the first two years:

Please show your work.

1. W₁ = $20,000; W₂ = $80,000

2. W₁ = $31,000; W₂ = $39,000

3. W₁ = $42,000; W₂ = $52,000