MBA Pay: Riches for Some, Not All

Schools publish average salary figures that suggest most grads will reap rich rewards, but for many the "average" is a distant dream

By Anne VanderMey

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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 PAYCHECKS

The 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 PICTURE

But 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.

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