MBA Pay: Peering Into the Future

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The value of the MBA, in terms of the starting salaries of graduates, hasn’t lately served as a ringing endorsement for the degree. According to a report last month by the Graduate Management Admission Council, which publishes the GMAT B-school entrance test, median starting salaries have been more or less stuck at $90,000 since 2008.

What about the degree’s value over the course of an entire career? Exclusive new research suggests that this, too, has stalled. What’s more, while top-ranked programs continue to deliver the greatest returns on the b-school investment, the gap between them and the rest of the B-school pack is growing.

“The effects of the Great Recession on the labor market for MBAs can still be felt today, a full three years after the official end of the recession,” says Katie Bardaro, analytics manager at PayScale, which conducted the research. “Jobs are fewer and further between and wage growth is far below its pre-recession levels. The only MBAs who appear to be escaping these stagnant wages are graduates from top-ranked programs.”

For the fourth year, Bloomberg Businessweek asked PayScale to tap into its database of 100,000 MBA graduates to calculate the median cash compensation—salaries and bonuses—for those with degrees from our top-ranked U.S. full-time MBA programs. PayScale, which collects salary data from individuals through online pay-comparison tools, determined the pay for graduates with pre- and post-MBA work experience of less than two years, five years, 10 years, 15 years, and 20 years. We then used those data to calculate a rough estimate of median cash earnings over the 20-year span.

Harvard Business School took the top spot in the ranking, with 20-year pay of $3,639,643, followed by the University of Pennsylvania’s Wharton School ($3,460,707) and the Stanford Graduate School of Business ($3,432,013).

On average, graduates of all 57 programs earned about $2.4 million over the two decades, or $122,513 a year. That amounts to a slight increase from last year, when annual pay for the group was $122,146. Graduates of the 10 programs with the highest earnings took home nearly $3.2 million apiece, or $159,122 a year, an increase of 3.6 percent. The remaining 47 schools averaged $2.3 million, or $114,724 a year, virtually no change from last year.

Over the course of the 20-year period, graduates of all 57 programs averaged a 90 percent increase in pay. But numerous factors, from geographic location to the career paths of graduates, resulted in wide differences among schools. Those institutions with the lowest starting salaries typically had the biggest increases. The University of Georgia’s Terry College of Business experienced the biggest gain—174 percent, to $139,000 at the 20-year mark. The Massachusetts Institute of Technology Sloan School of Management had the smallest, at 41 percent, to $169,000.

The MIT numbers highlight one of the study’s inherent limitations: Pay data for smaller schools such as MIT may be based on fewer than 50 reports and may not accurately reflect pay for the entire class. The pay figures themselves do not include stock or stock options, which can make up a significant portion of MBA pay, especially in later years. And the study itself is not longitudinal—the pay reports are for groups of people who graduated from the same school at various times, not for one group of people who reported their pay throughout their careers.

Despite those qualifications, however, the PayScale study yields a number of insights. For example, the average compensation for all 57 schools at the 20-year mark is $147,000, about three times the median income for all U.S. households. On average, total compensation for the entire 20-year period for every school except Harvard is two-thirds that of Harvard, ranging from 95.1 percent for Wharton to 49.5 percent for the University at Buffalo. The value of the MBA degree closely correlates to rank. Of the 10 schools with the highest career pay, eight are top-10 schools in the latest Bloomberg Businessweek Best B-Schools ranking; of the 30 schools with the highest career pay, all but five have a top-30 Best B-Schools ranking.

A key factor in determining how much an MBA degree pays out over time is the career path followed by graduates. Among the 10 schools with the highest career pay, about 28 percent of 2011 graduates went into consulting and 34 percent pursued finance—figures that have been fairly consistent for at least 10 years at schools, like Harvard, that publish historical data. At schools such as George Washington University, where nearly one of four MBA graduates ends up in government or nonprofit service, or Rice University’s Jones Graduate School of Business, where four-fifths get hired by regional employers at graduation, both starting salaries and career pay are far lower.

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