Archive for October, 2008

MBA Starting Salary

Attending a highly ranked business school does not guarantee a high starting salary.  There is a relationship between a schools’ average salary and its position in the popular rankings (US News, BusinessWeek); however, a schools average salary is not a good predictor of an individual’s expected salary.  Take Wharton for example.  The employment webpage reports that starting salaries for 2007 MBA graduates averaged $110K with a range of $28K to $392K.  Someone expecting to earn the $110K average at Wharton would probably be a little disappointed with $28K.

Now don’t throw the baby out with the bath water.  In the right context, salary data can be useful in selecting a business school.  To help build this context, you may want to consider the following elements when analyzing salary data:

Compare salaries at the industry level – average salaries vary across industries and the mix of industry placement varies by school.  Consider a student interested in investment banking who is deciding between Darden and Harvard.  At first glance, the average overall salary at Darden is $100K (data) compared with $115K at Harvard (data), indicating that the student may prefer Harvard.  However, the average salary for investment banking jobs is the same for both schools: Darden – $95K, Harvard – $95K.  One contributor to the difference in overall salaries is the larger portion of students who enter into investment banking at Darden than at Harvard (15% vs. 11%), which effectively lowers Darden’s average overall salary.  Therefore, salaries should always be compared at the industry level to factor out the effect of dissimilar industry mixes between schools.

Account for geographic trends – in much the same way that a student body’s industry mix will affect average salary, the geographic mix of jobs will impact a schools average salary.  For example, international jobs tend to have a lower salary and can pull down the overall average.  While probably not a major factor, looking at where students accept jobs will provide a better understanding of the schools’ salary data.

Consider student demographics – a student’s work experience can significantly influence their starting salary.  For example, someone who worked in consulting for 5 years before returning to business school will probably secure a higher starting salary than someone with 3 years experience in an unrelated industry.  Business school can help equalize differences in past experience; however, employers will still offer higher salaries to candidates with more relevant experience.  Thus, attempts should be made to identify the impact of a student body’s work experience on the schools’ average salary.  In light of the qualitative nature of work experience, reviewing a school’s class profile and thinking in terms of directional influences might be the most practical approach.

In consideration of these factors, it seems that marginal differences between businesses schools in average starting salaries (less than $10K) could be fully attributed to differences in student body demographics.  Perhaps a research study could attempt to isolate and quantify the impact of ‘MBA brand value’ on starting salary.  In the meantime, we seem to have overemphasized the importance of business school selection in determining an individual’s starting salary.