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MBA Pay: Riches for Some, Not All


The MBA in the corner office, fresh out of business school with a six-figure paycheck, is a standard trope of Corporate America. Every incoming student has heard rags-to-riches tales of that gilded certification leading to giant paychecks and even bigger bonuses. But how often do these MBA fairy tales actually come true? According to new research: not as often as you think.

The averages usually reported by schools tell prospective students only part of the story. Means and medians, like the ones reported on BusinessWeek's Web site, mostly gloss over the experiences of students in atypical careers such as microfinance or public service. And numbers outside the averages or ranges can be hard to come by, leaving students to play an uncomfortable guessing game in the shadow of student loans.

To help untangle the standard-issue statistics, BusinessWeek has comsissioned research tracking the overall distribution of pay at dozens of MBA programs. The data show not just what the average student earns, but how many students earn the average, how many earn less, and how many earn more—occasionally a lot more.

The data were compiled by PayScale, a service that compiles compensation data collected from its online salary tools. The tools compile users' self-reported salaries, in this case starting salaries of MBA graduates. BusinessWeek asked PayScale to take a look at recent graduates, 30,000 of them in all, to see what pay packages their degrees have landed them. PayScale then used individual responses from the MBA classes of 2007 and 2008 to calculate what percentage of students earn what size paycheck, plotting out not just the median, but the actual distribution of salaries, painting a more complete and complex picture of what graduates can expect.

COUNTING PAYCHECKSThe results are intriguing: The degree, with its general training, prepares graduates for a wide array of careers, and with that comes a huge variety of salaries. Less sunnily, there's a stark pay divide between graduates from top schools and the average MBA graduate, with the average MBA making only slightly more than half what grads from top programs do starting out. Even more sobering, the vast majority of MBAs—bearing degrees from schools of all stripes, good, bad, and indifferent—will not earn more than $75,000, and only about 4% will exceed the $150,000 mark.

However, as many schools contacted for this article were quick to point out, the data seem to be at odds with official tallies, which suggest substantially higher salaries. Part of this is probably because of the nature of PayScale's data collection tools. It's not a randomized, scientific sample. It makes no distinction between full-time MBAs, part-time MBAs, executive MBAs, and online degrees. A few of the small schools' individual results are based on fewer than 100 responses, and most others had somewhere between 100 to 200 respondents. Not bad, but hardly bullet-proof at schools which graduate more than 800 students a year.

The data also do not account for an individual's pay upon entering the program, nor the location of the job itself—all of which are major contributing factors in the size of a post-MBA paycheck. And since the PayScale data combine salaries and bonuses, they are not directly comparable with school-supplied data on salaries alone. What that means is that this report cannot be interpreted as a reflection on the quality of the schools themselves. Nor does it serve as a tool for comparing individual programs, since some graduate more part-time students than others, or send more students into nonprofit organizations, skewing their pay figures downward.

THE BIGGER PICTUREBut what the statistics do show is a rough distribution of different MBA starting salaries, and the results are far removed from what you might expect judging primarily from popular culture or standard statistics.

For one thing, graduates come out with a huge range of salaries. At most highly ranked schools, the top earners make two to three times bottom earners. Harvard Business School (Harvard Full-Time MBA Profile), where the variety was even greater, was an exception. There, a huge variance around the mean resulted in a very wide spread, with the top 10% earning more than seven times the amount earned by the bottom 10%. At the low end, says Jana Kierstead, Harvard's managing director of MBA career and professional development, students are working at nonprofits, startups, and jobs in foreign countries, where the cost of living and currency conversion rates can artificially depress pay figures. At the high end of the distribution were mostly graduates employed by hedge funds and private equity firms. And in the middle, she says, grads could be found doing almost anything.

Eugene Choi, a graduate of an accelerated MBA program at the University of Southern California's Marshall School of Business (USC Marshall Full-Time MBA Profile), knew going in that a job in the entertainment industry would likely land him a different kind of salary than that of many of his consultant classmates. But he didn't expect it would be as far off as it was. "Although I was looking at those averages, I knew it was going to be a lot less for me," Choi said.

After graduating, he found a temporary job he loves with the Japanese company Fuji TV (FJTNY), but he's making only $3,000 a month—a far cry from roughly $7,500 per month reported in the school's 2008 tally. Non-traditional jobs, he said, seem to be hardly reflected in the school's reports. Says Choi: "Bottom line, I feel like when you look at those average starting salaries at a business school, it really is more a reflection of the typical MBA job."

At the University of Michigan's Ross School of Business (Ross Full-Time MBA Profile), where there are strong nonprofit and entrepreneurial training programs, the school actively encourages students to go into a diverse range of fields, some of them not so well-compensated. Al Cotrone, Michigan's director of career development and student affairs, says that taking the overall average salary to try to gauge an individual's likely earnings, "approaches meaninglessness."

MBA INEQUALITYOne of the more stark divisions represented in the data is the pay disparity between different programs. According to PayScale, graduates from the Top 10 programs will make nearly twice as much as the typical MBA. And that pay advantage wears off fast after the Top 10, says Al Lee, PayScale's director of quantitative analysis. "Outside of the Top 20 [ranked schools], you're under six figures," he says. Even worse news for students at lower-ranked programs: "By the time you get out of the Top 30 you're talking just a small premium over the average school," Lee says.

The overall numbers conflict with the studies put out by the Graduate Management Admission Council. Their survey of corporate recruiters, with a sample size of 417, suggests the median starting salary for MBA hires is $88,000, and higher if bonuses are included. PayScale's data do include bonuses, though because the data were collected over the course of a year and draws from two different graduating classes, it may leave out a few signing bonuses. Overall, PayScale's average clicks in at a much more modest $66,300.

Despite the discrepancies between some other studies and PayScale's data, it is hard to ignore the steeply sloping curve produced by tens of thousands of respondents. Only 17.6% of graduates were projected to earn a starting salary of more than $100,000 and only 4.1% more than $150,000. At the top schools, 67.4% made more than $100,000 and 21.3% more than $150,000. Other studies have also found a dramatic gap between the average schools and the top schools in terms of earnings. But for the most part, it has little to do with the quality of education. Andrew Hussey, an assistant professor of economics at the University of Memphis, says his research led him to the conclusion that graduates of the top-ranked schools brought in salaries almost twice as big as those of other MBAs. Much of the difference, he say, is the result of the high salaries and impressive GMAT scores that students earned before entering the program, and the school's physical location. "Once you control for those observable factors, a lot of that [pay] difference goes away," Hussey says. But not all of it. For whatever reason, there does seem to be a premium for graduates from top programs.

Robert Travis, a director of the Boyden World Corp., and managing director of the Atlanta and Calgary offices of Boyden Global Executive Search, says companies are looking for something "intangible" when they recruit from top schools. The attendant perception of a strong alumi network, the assumption of quality training, and the degree's prestige often help top MBA grads, Travis says, even later in their careers.

"When I'm showing a short list of candidates for a COO role, there's an automatic quick glance to the education section of everybody's CV," he says. Work experience still trumps all, but he says he's seen cases where degrees from top schools have tipped certain job candidates over the edge. Plus, hiring a Harvard graduate is usually viewed as a safe bet, Travis says, invoking the old maxim, "Executives normally don't get fired for hiring IBM."

MORE TO LIFEThe question of compensation has become even more urgent in the wake of the financial crisis. According to a recent study by QS, a London information company specializing in the higher education sector, return on investment has become the most important factor in Americans choosing a certain business school, beating out career placement for the top spot.

That doesn't mean MBAs aren't still pursuing idealistic, low-paying jobs, though. Most of the salaries on the low end of the pay distribution are the result of voluntary decisions, whether it's staying in the Midwest instead of heading to the Northeast, going abroad, or pursuing a career in government. This generation of students in particular, seems to be putting their degrees toward a wider variety of careers. Many students are ending up working in sustainability-related jobs or social entrepreneurship, rather than the chasing the big bucks on Wall Street. And finding students jobs they love, is the primary purpose of the MBA, career services directors say.

"We do a bit of disservice to ourselves when we go on and on about how much [graduates will] make," says Erik Medina, director of graduate career services at Indiana University's Kelley School of Business (Kelley Full-Time MBA Profile). "I think we miss the point of what we're here for."

But even if students do have money on the brain when they pursue their MBA—from a top school or an average one, in New York or in Iowa—the degree just doesn't cut it as a fail-proof get-rich-quick scheme. While some grads make hundreds of thousands, others make a pittance while they start their own companies, and still others are unemployed. No matter how you look at it, the fantastic notion of a diploma being an express ticket to a big company's corner office is probably just that—fantasy.

Click here to view a slide show of recent graduates' salaries.
Anne VanderMey is a B-schools writer at BusinessWeek.

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