I wonder how much of this is because a lot of people who were high earners before going to business school are also high earners upon graduation, but it is tough to argue with $286,000 per year as a median first-year-out-of-MBA-school income (for MIT Sloan graduates). See Bloomberg for some more numbers.
[See Real World Divorce, though, for how an American resident or visitor doesn’t need to go to business school, or to work at all, to have this kind of after-tax spending power. The Massachusetts chapter has at least one concrete example.]
Readers: Is this rational behavior for employers? Why not hire smart folks fresh out of college for $100,000 per year, have a night school at the company where they go through the MBA textbooks and watch some YouTube videos, and promote the best of this group? Or back it up to high school graduates! Hire them for $50,000 per year, supervise their online bachelor’s degree in the evenings at the company’s office, and promote from that pool? Why let MIT and Harvard college huge $$ to do the filtering? You can argue that you’re investing money in training people who will quit, but most of the investment is a conference room that wouldn’t be used at night anyway. Also, if you hire an MBA at $286,000 per year and he or she gets some experience at your firm there is always a risk that the MBA will quit for a yet higher salary elsewhere (these are not teachers, certainly, who will just keep working despite being underpaid).
It is just rich kids getting the same sweetheart deals they always got and always will. The rest of us have to bring something to the table.
Because the employers gain status by having staff with degrees from name schools.
For example, consulting firms can bill more for Sloan School MBAs than MIT Bachelor degrees.
Back in the 70s I worked for a consulting firm. They offered to pay for my MIT Master’s degree. They would have made the money back very quickly by billing a higher rate for my time on their contracts.
I don’t believe the consulting firm thought my work product would be materially improved by getting a Masters either. I was already doing the same tasks as other staff members with MIT Master’s degrees. But I was taking up a chair and a desk in the office and they saw a way to make more bucks out of that.
In that environment the payout was very direct. But even in non-consulting firms, staff with higher degrees from bigger name schools may be perceived as an asset in winning contracts, scoring investments, etc.
The main reason for these high salaries is most likely offers from management consulting firms like Bain & Company, Ernst & Young, BCG, McKinsey and etc. These management consulting firms have been very good at convincing the Fortune 500 that they are useful, but also it can be a way for C level executives to protect their decisions from lawsuits. If the executive of a company is sued, they could say in their defense that they hired a management consulting firm at $1000 / hour and because they payed $1000 / hour they hired the best to make the decision, this way they are not legally responsible for any decision they make.
The other reason is the relationship that these consulting firms have with the business schools, they use the schools name in getting higher hourly rates. It does not matter on the skills or intelligence of the management consultant, all that matters is that they went to Harvard and etc, and that is why they can charge $1000 / hour for a new graduate.
They are experts at selling a fresh graduate at a very high price to their clients. The clients are paying for the name of the consulting company and the name of the school. They can say “We hired Bain for this project because they only hire from Harvard”, the skills and the ability to do any work of the management consult are irrelevant.
The management consulting firms and the big law firms, demonstrates the strengths of the rent seeking economy, where you do not have to produce anything, you just seek rent on somebody else that can produce. Rent seeking is much more financially rewarding in today’s economy.
Universities are allowed to broadly use general intelligence tests in admissions. Companies are not explicitly forbidden from doing so, but case law from Griggs v. Duke Power makes doing so sufficiently risky as to be a de facto ban.
However, it is perfectly legal to always favor the person with the degree from Harvard over the one from UMass-Lowell. This works against the very smart first-generation Brazilian kid from Lawrence whose school doesn’t really care and whose parents have no idea about how to play the college admission and scholarship game.
It very much favors the upper-middle-class kid whose parents can afford tutors, private school, admissions consultants, “enrichment experiences,” and other things that can help nudge a person a notch or two above where they’d get entirely on their own effort.
That’s brilliant, Colin. I hadn’t thought about that. A lot of government policies seemed designed to funnel as much cash as possible to university cronies.
Let’s take immigration, for example. There is no mechanism for a foreigner to give the U.S. Treasury $500,000 and obtain in exchange the right to live and work in the U.S. But the foreigner can pay $500,000 to a university plus maybe another $75,000 to a lawyer and obtain these rights.
So if you have employers who want to hire young people with high SAT scores they have to pay universities to first collect young people with high SAT scores.
Salaries are lifting off, everywhere. It’s a waste of time chasing a job, because next year they’ll be higher again.
@philg There is a mechanism for getting US residency by spending anywhere from $500K-$1M. It’s called the EB-5 Visa (aka “Immigrant Investor program”).
This lets you become a lawful permanent resident of the United States if you invest $1 million in a US business. Alternatively, if that business is in a rural area, you can obtain the visa with a $500,000 minimum investment.
J: That’s not $1 million to the US Treasury and therefore $1 million that existing residents of the U.S. don’t have to pay. I think a lot of this is invested in real estate, which mostly enriches existing U.S. real estate owners.
See https://blogs.wsj.com/briefly/2015/09/09/5-things-to-know-about-eb-5-real-estate-finance/
and
https://therealdeal.com/issues_articles/the-eb-5-gravy-train/
Is that a crazy salary? Can you live comfortably in Manhattan or a nice part of Mass. or California on that? Can you support a stay at home spouse (or, as is often alluded to in here, a stay at home ex spouse)? Can you save enough to put 2 kids through the ivies at whatever it’s likely to cost in 20 years?
Google pays their good engineers more than that.
superMike:
Median household income in MA: $70,628, in CA: $64,500 as of 2015. $286,000 is 4x of MA. It is a crazy salary in MA by any common sense metric for an ordinary person.
Google median is $141,000. An MBA salary is 2x of that.
MBA salaries drop off a cliff very quickly once you get past the top few schools. For instance, a degree from UCLA’s Anderson school is already kind of iffy, and you’d never get a high-end New York gig out of it.
MBA salaries drop off a cliff very quickly once you get past the top few schools. For instance, a degree from UCLA’s Anderson school is already kind of iffy, and you’d never get a high-end New York gig out of it.
My 720 GMAT didn’t get me into the Stanford MBA program, but it did get me a half tuition scholarship to the full-time MBA program at the University of GA. While it opened up a broad range of industries and job prospects for me, and got me out of programming, the MBA has not been lucrative for me. Despite my MBA, due to a couple of layoffs and missed opportunities, the “Great Recession,” crushing competition, and my own risk aversion, my salary today is exactly what it was in 1997 before I started my MBA.
Google total income is much higher than the suggested median base salary, but it’s in the tech industry’s best interest these days to make sure the published income figures stay rather low to keep their image from degrading too quickly…
Interestingly, tech companies don’t value MBAs very much, which is refreshing.
I’d like to see how much of this compensation is recurring, versus recruiting bonus. There is a big difference between the two.
I think it’s better to compare compensation on a per hour basis.
For example, if the jobs are in consulting or on Wall Street, at 80 hours per week, the hourly rate drops in half, compared to a normal workweek.
And I have to believe a job that pays that well will involve some combination of a lot of stress, a lot of hours, and a lot of travel, and possibly very low job satisfaction/ethical choices, as well.
In my experience, the total compensation at Google comes out to ~ 2x + epsilon the base salary+bonus.