When one company buys another company, it is not unusual that some workers are terminated. The severance benefits offered to the laid-off workers are often the subject of dispute. Suppose that the Laurier Company recently bought the Western Company and subsequently terminated 20 of Western’s employees. As part of the buyout agreement, it was promised that the severance packages offered to the former Western employees would be equivalent to those offered to Laurier employees who had been terminated in the past year. Thirty-six-year-old Bill Smith, a Western employee for the past 10 years, earning $32,000 per year, was one of those let go. His severance package included an offer of 5 weeks’ severance pay. Bill complained that this offer was less than that offered to Laurier’s employees when they were laid off, in contravention of the buyout agreement. A statistician was called in to settle the dispute. The statistician was told that severance is determined by three factors: age, length of service with the company, and pay. To determine how generous the severance package had been, a random sample of 50 Laurier ex-employees was taken. For each, the following variables were recorded:

Number of weeks of severance pay

Age of employee

Number of years with the company

Annual pay (in thousands of dollars)

a. Determine the regression equation.

b. Comment on how well the model fits the data.

c. Do all the independent variables belong in the equation? Explain.

d. Perform an analysis to determine whether Bill is correct in his assessment of the severance package.