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The Online MBA Salary Blues

The rap against online MBA programs has always been that the benefits, in terms of career advancement, can’t compare to those enjoyed by students in full-time MBA programs. Critics of online programs say that recruiters consider the programs educationally inferior and that as a result, the job offers, salaries, and other benefits that derive from the programs are smaller.

Most online MBA programs offered by top business schools cost less than the institutions’ full-time programs, so a salary at graduation that’s a few thousand dollars less is not the end of the world. But all this changed in November, when the University of North Carolina Kenan-Flagler Business School announced MBA@UNC, an online program with an unquestionably full-time MBA price of $89,000,

Can an online program, even one offered by a top-ranked business school such as Kenan-Flagler, ever prove a bargain at that price? What can the inaugural class of 19 students in the MBA@UNC program expect when they graduate in two years and begin looking for jobs?

Predicting is always dicey, especially when it comes to MBA salaries, which are influenced by the fates of national and regional economies, industries, and even the fortunes of specific companies. But information can be gleaned from online MBA programs with a bit more track record.

Web Pioneer: Indiana’s Kelley Direct

Consider the Kelley Direct online MBA program at Indiana University’s Kelley School of Business. Launched in 1999, it has graduated nearly 1,300 MBAs, making it one of the longest-running online MBA programs offered by a top-ranked business school. The schools’ full-time MBA programs are comparably ranked: Sixteen for UNC and 19 for Indiana. Each online program is taught by faculty members who instruct in the full-time programs, and both include on-campus experiences, in addition to the online component. Students in both programs have nearly twice the experience of their full-time MBA counterparts—a little less than 9 years. Both attract applicants from a wide range of industries: One-fifth of Kelley Direct’s 2010 class comes from manufacturing, while the inaugural class of MBA@UNC hails from such companies as Bank of America (BAC), Lockheed Martin (LMT), and Pfizer Pfizer (PFE).

So what can the experience of Kelley online MBA grads tell us about what the MBA@UNC grads can expect?

For starters, they shouldn’t expect huge pay raises—at least not by full-time MBA standards. At Kelley Direct, the average salary of the MBA class of 2010 was about $70,400 at enrollment, with 2 percent of students earning $120,000 or more, according to Kelley data. By graduation, the average salary had risen to $89,100, with 26 percent of students earning at least $120,000. The increase in average salaries was $18,700, or about 26.5 percent. In dollar terms, that’s about half the increase achieved by Kelley’s full-time MBAs, whose salaries increased by nearly $37,000—or more than 70 percent—to $89,144.

If the MBA@UNC students have a similar experience, they can expect a pay raise of $21,481, or about half what grads of UNC’s full-time MBA program get. Since the 19 MBA@UNC students entered the program earning considerably more than the Kelley students, $128,500 on average, that would give them post-MBA pay raises of 16.7 percent and post-MBA salaries of nearly $150,000. But with salaries that high, and a group that small, such calculations are nothing more than educated guesswork.

Terrill Cosgray, executive director of the Kelley Direct program, says there are differences in the types of students who opt for an online MBA in place of a full-time program. "Our online program is less well-suited for someone who wants to do a really dramatic career shift, especially someone who’s pretty junior in their career," Cosgray says. "In the past, we’ve found that most students are staying within their own company. Their intent in pursuing the MBA is a little bit different."

Less-Dramatic Goals for Online MBAs

Similar types of students will be drawn to the MBA@UNC program. The Kenan-Flagler dean, Jim Dean, says students suited for an online MBA might enter the program because they have received a promotion but feel that their skills are being stretched. Others may want to move from the technical side of their industry to a managerial role.

"The full-time MBA program is really designed to help people move into different careers," Dean says. "That’s not really the case with the MBA@UNC program. We’re not providing anywhere near the same kind of career-services format that we do at the full-time program."

Self-selection isn’t the only reason starting salaries for online MBA students are lower than those of their full-time MBA counterparts.

Even though grads of both MBA@UNC and Kelley Direct receive the same diplomas as other MBA graduates, the online nature of the program is usually apparent from a glance at a candidate’s résumé, or becomes so during the interview. Some employers continue to value the full-time programs for the classroom experience they provide, says Elissa Sangster, executive director of the Forté Foundation, which provides support services for women considering business careers.

Kristina Liphardt, an MBA recruiting leader for Ernst & Young, which hires a lot of Kelley MBA graduates, says online MBA grads have to juggle both work and school and may have better time-management skills as a result. But Ernst & Young also looks at other valuable experiences that students may gain in a full-time program.

Teamwork Is a Big Full-Time Plus

"The one thing they may have had more of an opportunity for is the teamwork aspect because it is a big part of the full-time program," Liphardt says. "That’s a critical experience and skill set that we look for."

Still, there are students for whom an online MBA is both the only choice and the best choice, notwithstanding the lack of classroom experiences, recruiters’ preference for full-time MBA graduates, and lower starting salaries.

Rajiv Sridhar enrolled in MBA@UNC to get an MBA from a top-tier school while keeping his job as a technology consultant with Tata Consultancy Services (TCS:IN) in South Florida, where his wife also works. Sridhar says the experience of getting an MBA online more closely matches his work experience than a full-time program would.

"We argue online. We compromise, too, online," he says of his classmates, with whom he has become close since classes started in July. "In my line of work, I do all of this on a day-to-day basis."

Join the discussion on the Bloomberg BusinessweekBusiness School Forum and follow @BWbschools on Twitter.

Stilwell is an intern for Bloomberg Businessweek.

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