News flash: Grads from the top MBA programs make more money over the course of their careers than peers from lower-ranked B-schools. That's not much of a surprise, considering MBAs from programs like Harvard, Wharton, and Stanford command the highest salaries—$126,000, on average—upon earning the business credential. But what is surprising is how much more grads from these highly ranked programs will make over a 20-year career compared with grads from lesser-ranked programs. According to new research commissioned by Bloomberg Businessweek, the difference is more than $1 million.
Executive compensation expert Ken Hugessen isn't shocked at the disparity in MBA earnings. "The differences in salary at the beginning are hugely predictive of the 20-year accumulation," he says. "If you're at a top school, you must be pretty smart to get in. You're a stronger breed of cat from day one. That will follow you throughout your career."
For the third year, Bloomberg Businessweek asked PayScale, a company that collects salary data from individuals through online pay comparison tools, to use its database of MBA graduates at the top U.S. business schools to calculate their median cash compensation—salaries and bonuses—around graduation and after they have an average of 5, 10, 15, and 20 years of pre- and post-MBA work experience in the same industry. We then used those data to calculate an estimate of median cash earnings over the entire 20-year span.
Overall, grads from the 57 top programs earned an estimated $2.4 million in base pay and bonuses over the course of a 20-year career, according to the data. On the high end is Harvard Business School (Harvard Full-Time MBA Profile), where grads earned about $3.6 million.On the low end is the University at Buffalo (Buffalo Full-Time MBA Profile), where grads earned about $1.7 million.
After Harvard, grads from the University of Pennsylvania's Wharton School (Wharton Full-Time MBA Profile) earned the most, with total cash pay of $3,340,334, followed by Stanford's Graduate School of Business (Stanford Full-Time MBA Profile) at $3,291,894.Of the 10 schools that boast the highest 20-year payoffs, eight are ranked in the top 10 of Bloomberg Businessweek's Best Business Schools ranking.
But not all of the elite programs fare so well.
MBA grads from the top-ranked Booth School of Business (Booth Full-Time MBA Profile) at the University of Chicago, made an estimated $2.9 million, on average, over a 20-year career, good for only ninth position overall. Julie Morton, associate dean of career services at Booth, says a lot of the difference has to do with the industry that students go into, specifically consulting. More grads at other top schools take consulting jobs than at Booth, where finance jobs are more popular, and that, she says, explains a lot. "Straight out of the gate, consulting firms' bases are about $15,000 higher than banking base salaries," Morton says. "From that perspective, a school like Harvard is going to have a higher base because they send more people into consulting than they do banks."
At Columbia Business School (Columbia Full-Time MBA Profile), 75 percent of grads go into consulting, finance, or accounting positions, which explains their whopping $3.2 million in pay at the 20-year mark.Conversely, at a school like the University of Wisconsin (Wisconsin Full-Time MBA Profile), where 20-year pay totaled $1,916,643, a comparable number of grads go into consumer-products positions as financial services.
For other schools, like Southern Methodist University's Cox School of Business (Cox Full-Time MBA Profile), the differences may be more centered on location. At Dallas-based Cox, the vast majority of grads stay in the Southwest—88 percent of the MBA graduating class of 2010—where historically the cost of living and salaries are lower than in a region like the Northeast, where most Harvard and Wharton grads end up. "You'll have a good salary for the standards of the rest of the world, and you'll have a good living, but there is such a bias when you get into the big money centers and consulting centers [of the Northeast]," Hugessen says. "That's where the money is."
The numbers do suffer from some inherent limitations—they don't include stock or stock options, and the pay data for smaller schools at the 20-year mark may be based on fewer than 100 pay reports. In some cases, pay reports may come from graduates with MBAs from their schools' part-time, executive, or online MBA programs. The data also do not track the same graduates over time; they reflect the experience of individuals who graduated at various points throughout the last 20 years. And of course they don't predict the future. The data are useful, though, to get a sense of how grads from top MBA programs fare when it comes to compensation over the span of a career.
The average salary for grads with less than two years' experience, $84,774, is down compared with last year by about 7 percent. One reason for the difference is that 12 more schools were included in the data this year, most of which fall below the average. Another reason, explains Al Lee, director of quantitative analysis at PayScale, is the continued effects of the economic downturn. "It's been a rough few years for recent grads, in general," he says. "They're coming out at a bad time."
In Lee's view, the data's value is in highlighting broad trends over time—such as the percentage increase over 20 years—and not necessarily the average pay figures themselves. "It's important to look as much at the pay bump as the total salary number," Lee says. "Most MBAs don't get a consulting job that pays $130,000 a year. That's simply not the typical experience."
Georgia's Pay Bump
That's good news for a school like the University of Georgia's Terry College of Business (Terry Full-Time MBA Profile), where MBAs experienced a 158 percent jump over the 20-year span. Overall, grads from the top B-schools experience an average salary increase of about 83 percent over the 20 years, a return that mirrors the national average over the same time period, according to PayScale.
Newly minted MBAs at some top programs, such as the Yale School of Management (Yale Full-Time MBA Profile), earn high starting salaries but experience only a minimal increase over time.At other schools, such as George Washington University's School of Business (GW Full-Time MBA Profile), MBA grads more than doubled their salaries over the 20-year period, and at the University of Pittsburgh's Katz Graduate School of Business (Katz Full-Time MBA Profile), MBAs saw a 156 percent pay bump over the same time frame.
MBAs from Dartmouth's Tuck School of Business (Tuck Full-Time MBA Profile) wear a less desirable crown as the program whose grads experience the least salary growth over their careers. New MBAs from Tuck earned the most of any of the schools on the list, $131,000, but at 20 years their median pay of $172,000 is good for 12th overall, and a total increase of only 31 percent. Tuck's small size and limited pay information on long-ago grads may explain the performance. However, it's hard for Tuck grads to complain: Their total pay, at $3,092,471, is good for fifth overall.