MBA Pay: A Crystal Ball

What's your MBA really worth? Well, a lot depends on what you mean. In their marketing materials, elite business schools focus on starting salaries, which can be quite impressive. But what about 5, 10, even 20 years out? For a long time, that's been terra incognita—a no-man's-land of guesswork and supposition. Not anymore.

New research commissioned by BusinessWeek suggests that when it comes to the post-MBA earnings accrued by graduates of top business schools over the span of their careers, not all schools are created equal. Some schools that start out strong with six-figure salaries sometimes sputter and stall, leaving grads with less-than-impressive salaries after 20 years in the workforce. And some schools where grads earn modest salaries out of the gate end up with the strongest of finishes, in some cases doubling their cash compensation after 20 years and overtaking better-ranked rivals. (See our interactive table MBA Pay Through the Years at 45 Top Programs.)

The research comes from PayScale, which collects salary data from individuals through online pay comparison tools. BusinessWeek asked PayScale to dig into its database of 80,000 graduates of 45 top MBA programs and calculate their median cash compensation—salaries and bonuses—during the first five years of their careers and after they have an average of 5, 10, 15, and 20 years under their belts. BusinessWeek then used that data to calculate an estimate of median cash earnings over the entire 20-year span.

The data suffer from some inherent limitations—it doesn't include stock or options, and the pay data for some smaller schools at the 20-year mark may be based on fewer than 100 pay reports. It also does not track the same graduates over time; it reflects the experience of individuals who graduated at various points throughout the last 20 years.

Surprises at the 20-Year Mark

But as a rough benchmark to the earning power of MBA graduates who go on to become top executives, it's enlightening. While for the most part the new research confirms that you get what you pay for—graduates at expensive top-ranked programs such as Harvard Business School and University of Pennsylvania's Wharton School fare the best long after graduation—it also produced a number of surprises.

After 20 years, graduates of three schools have cash compensation that is double, or more than double, what today's students make at graduation, and none of them are high-profile schools: Georgia Tech, University of Connecticut, and George Washington University. The graduates of 10 schools—including No. 15 Indiana University's Kelley School of Business—had median cash compensation at the 20-year mark that is no better than what Harvard Business School grads make shortly after graduation. And at the No. 5 University of Michigan Ross School of Business, where median cash compensation for new graduates was a respectable $109,000, the pay for graduates with 20 years' experience was just 28% more, or $140,000—the worst showing among the top 10 schools.

Both Kelley and Ross disputed the PayScale figures. Pam Roberts, director of the Kelley MBA program, said today's graduates average about $95,000 excluding bonus, about $15,000 more than PayScale reported. Al Cotrone, director of career services and student affairs at Ross, said his school's poor showing at the 20-year mark might reflect the fact that fewer Ross graduates likely pursued careers in investment banking back then. Says Cotrone: "That's probably going to make a difference."

Top Schools, Top Earnings

One of the more surprising findings in the PayScale analysis was that the median cash compensation over the entire 20-year period, for all the schools in the study, was $2.5 million. And fully 37 of the 45 schools fall within $500,000 of the median—suggesting that the difference in lifetime earning power between MBA programs is less than many suppose. Only seven schools broke the $3 million mark, and only one of those—Harvard—comes close to $4 million.

Maury Hanigan, president of the MBA Scouting Report, says the numbers show that the marquee names have power. "There's no doubt there's a set of marquee schools and if you come from one of them it's impressive," says Hanigan. "There's absolutely a cachet that goes with that."

Moreover, Tom Rodenhauser, a vice-president at Kennedy Information, which tracks the consulting industry, notes that consulting is among those fields that have attracted the lion's share of new MBA grads for many years—in part, because of the compensation—and it's an industry that is particularly concerned with academic pedigree. Firms like McKinsey, Bain & Co., and Boston Consulting Group all focus their recruiting efforts on top 10 schools, even if other schools turn out grads that are just as qualified. "The consulting firms are basically like a fraternity or sorority, and they tend to hire like-minded people who come from the same club," he says. "I would say a good 50 to 60 percent [of MBA hires] come from top 10 schools."

Beyond brand power, there are several possible explanations for the findings, but few if any certainties. Some schools that send many graduates into investment banking clearly benefited from their relationship to Wall Street. Columbia Business School and Wharton had some of the highest cash compensation at the 20-year mark: $193,000 and $205,000, respectively. Others clearly benefited from rankings. The four schools that dominated the BusinessWeek MBA rankings since their inception in 1988—Harvard, Wharton, Northwestern's Kellogg School of Management, and Chicago's Booth School of Business—are also among the schools with the biggest earning power.

Inside the Compensation Numbers

For prospective students, the new research presents a conundrum. For one thing, the earning power of schools is in flux. The PayScale salary data reflect the compensation earned by graduates who are the product of programs that were vastly different from the ones we have today. Twenty years ago, the chances of seeing an executive teach a B-school class were nil, specialties that are common today had not yet been created, and Wharton had not yet cemented its academic reputation—in BusinessWeek's 1990 ranking it was awarded a "C" in teaching quality.

What's more, the median pay figures disguise what can be great variation in individual salaries. At Vanderbilt, for example, where the median cash compensation at the five-year mark is $93,400, about 10% of MBA graduates earn more than $146,000—about what the average Harvard grad earns. At Harvard, meanwhile, the highest-paid graduates have salaries that exceed $300,000 at the five-year mark.

Another complicating factor is cost. The top-ranked MBA programs have tuition and living expenses that can top $150,000 and after factoring in two years of forgone salary the total price tag can easily exceed $300,000. At big state institutions the cost might be half that amount or less. Is the more expensive program a great investment, or money down the drain?

Matt Wilson, 31, is in the "money down the drain" school. He turned down Chicago Booth, the top-ranked full-time MBA program in BusinessWeek's 2008 ranking, to attend No. 15 Indiana, at least in part because it was cheaper. Wilson, now a marketing manager for the tool division at Danaher (DHR), wasn't disappointed: He was fielding four different job offers before he graduated in May. "Is my starting salary [$10,000] less than it would have been at Harvard? Probably," says Wilson, adding "I probably saved [$50,000] over the two years."

Maybe so, but it may cost you in other ways. The founder of Doostang, an invitation-only career networking site for young professionals, and himself a graduate of the Stanford Graduate School of Business, Mareza Larizadeh says a degree from the big three—Harvard, Wharton, or Stanford—opens doors that may be closed to grads of lesser-known schools. "As a recruiter from Goldman Sachs once told us, 'I'll never be upset at receiving a rÉsumÉ from a Harvard MBA, even if it isn't a good fit for the position which they are applying for. It will be very useful to me for other positions or future positions that may open up.'"

Fallout From the Wall Street Crisis

Will the schools that fared well in the PayScale analysis of the last 20 years fare just as well over the next 20 years? A lot depends on the unraveling economy, and a lot depends on the school. If financial services continues on its downward spiral or becomes permanently less profitable through regulation, schools like Wharton, which sent 47% of its students to financial services last year, will be far more exposed than schools like Kellogg, which sent about half as many to Wall Street.

Harvard Business School's career services director, Jana Kierstead, believes that cash compensation for many MBA grads will fall in the short term as signing bonuses and yearend bonuses become less common, and less lucrative. But Wharton Vice-Dean Anjani Jain sees a silver lining. He says the economic turmoil might eventually result in MBA classes less enamored of Wall Street jobs. And that's not a bad thing, even if the financial crisis is a painful way to accomplish it. "The paths had become so well-paved and effortless that it limited their eagerness to explore," says Jain. "To that extent it's healthy."

Interactive Table: MBA Pay Through the Years at 45 Top Programs

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