Why Pay Is Down For HBS & Stanford MBAs 03-16

Why Pay Is Down For HBS & Stanford MBAs

Are Harvard and Stanford MBAs no longer the highest paid business graduates on the planet?

For years, it was pretty much a given that the most lucratively rewarded MBAs in the world strode off the campuses of the Harvard Business School and the Stanford Graduate School of Business. Yet, for the first time ever last year, the average salary and bonus paid to HBS and Stanford grads was below the sums landed by rival MBAs at both the University of Pennsylvania’s Wharton School and Dartmouth College’s Tuck School of Business.

For Harvard and Stanford MBAs, in fact, starting salaries and bonuses were the lowest they have been in the past three years. HBS grads landed jobs paying $138,346, down from $142,501 in 2012, while Stanford MBAs took jobs that on average paid $137,525, down from $140,459.

In contrast, Wharton grads were paid a record $141,243 last year, nearly $4,000 more than Stanford MBAs. Dartmouth Tuck grads left the school’s Hanover, New Hampshire campus with average salary and bonus of $139,036—more than $1,5000 extra.

Even worse, perhaps, average salaries and bonuses for the graduates of what are generally considered the two best business schools in the world are still significantly lower than they were five years ago in 2008.

THE GREAT RECESSION HELPED TO RESET MBA PAY

Though the Great Recession was already underway that year, most of the job offers were made to graduates before the market went bust so they reflected the pre-crash froth of an economy in a bubble. In 2008, Harvard MBAs reported record salary and bonus averaging $144,261. Last year, a full five years later, the pay was nearly $6,000 less. It’s a similar story for Stanford MBAs. The Class of 2008 received average salary and bonus of $140,771, also a record, but more than $3,000 less in 2013.

Truth be told, Harvard and Stanford pay hit an artificial ceiling in 2008. The reset of the economy has essentially reset those pay levels. After all, in 2008 average salary and bonus at HBS went from $135,630 in 2007 to $144,261–a hefty jump in a single year.  At Stanford, it went from $134,654 to that $140,771.

The latest compensation numbers are reported by the schools to U.S. News & World Report for its ranking of the best full-time MBA programs published earlier this week. Harvard and Stanford aren’t the only outliers. In fact, starting salary and bonus for MBAs fell at 12 of the Top 50 business schools.

A CHANGING MIX OF INTERESTS AND JOBS ARE ALSO BEHIND THE LOWER BASE NUMBERS

But how it is possible that HBS and Stanford no longer rule the pay roost? ”It’s simply the industry mix,” explains Maeve Richard,  assistant dean and director of Stanford’s Career Management Center. Where Stanford MBAs take their careers “has fluctuated significantly as students have gravitated from finance to technology over the last six years. Since 2007, the percent of students going into finance has gone from 38% to 26% (2013). That has affected the calculation of overall compensation since the cash bonus component tends to be high in finance.”

Many of the tech startups that have been successful in recruiting more of Stanford’s graduating class keep base salaries and sign-on bonuses low, preferring to hand out stock and other back-end bonuses not calculated in more traditional salary-and-bonus metrics.

“Over the same period (from 2007 to 2013), the percent of students going into technology has risen significantly from 12% in 2007 to 32% in the last graduating class. It’s important to note that the standards used by business schools and U.S. News for calculating compensation do not capture equity gains such as stock options, which is a potentially significant portion of compensation for those in the tech sector. “

‘MANY OF THESE FOLKS ARE TAKING AN EQUITY STAKE IN A NEW OR RECENT VENTURE’

Kristen Fitzpatrick, who heads up the Career and Professional Development Office at Harvard Business School, attributes the decline to a changing mix of careers and interests as well. “Our students now are pursuing more options –-different options-–where they can have an impact sooner rather than later,” says Fitzpatrick. About18% of the class went into technology, up from 12% last year, and for many of these folks, that meant taking an equity stake in a new or recent venture, rather than salary.”

Another 5% of the class went into the non-profit sector, up from 3% a year earlier. “They will definitely make their mark, but not win recognition for a high salary,” she says. “Beyond all this, the numbers of the class going into high-paying PE/VC firms are down – 10% this past year, down from 16% in 2012.”

Of course, no one at Harvard or Stanford is crying over the loss of their high-pay crowns. Once you add in some of those back-end bonuses—not included in the U.S. News numbers—you get quite a different picture of compensation. Consider, for example, the 9% of the graduating class that went into private equity. Roughly 47% of that group reported “median other guaranteed compensation” of $135,000. That’s right, $135,000, in addition to the $150,000 median base salary and the $25,000 median signing bonus.

THE SALARY-AND-BONUS GAP BETWEEN THE ELITES AND OTHER HIGHLY RANKED SCHOOLS IS SHRINKING

Sure, it’s a relatively small portion of HBS’ graduating class that is getting that kind of cash. But if you threw those numbers into the averages, they would look quite different. For the 9% of the class, for example, that landed jobs in private equity,

At the same time, average MBA salaries and bonuses since 2009 are up at 38 of the Top 50 schools, and unlike the downward trend at a few very elite schools, 20 of the Top 25 schools reported increases in pay last year. Even more telling, some of the increases are often greatest at MBA programs you would least expect. Think of schools like the University of Florida of the University of Washington.

What’s happened is that the gap between the top of the market and the bottom has greatly diminished. Generally, MBAs from the big brand schools were already making so much money that there wasn’t much room for significant improvement. MBAs from the lower Top 25 schools, on the other hand, have seen far greater momentum.

AVERAGE SALARY & BONUS IS UP 36.2% AT THE UNIVERSITY OF WASHINGTON’S FOSTER SCHOOL

The Top 25 school whose MBAs have been the greatest beneficiary of this trend? Graduates of the University of Washington’s Foster School of Business. Class of 2013 Foster MBAs pulled down average salary and bonus of $118,759, up 36.2% from the $87,177 average in 2009. It helps, of course, when the headquarters of such healthy companies as Amazon.com, Microsoft and Starbucks are in the neighborhood.  Similarly, graduates of Emory University’s Goizueta School of Business posted average salary and bonus of $124,148 last year, up 21.3% from the $102,372 they made in 2009.

Put another way, HBS grads made $44,042 more than Foster MBAs in 2009. Last year, the gap between the graduates of these two school had shrunk to just $19,587. What’s occurring is a greater appreciation for the MBA degree in general and the belief that the training a person gets in a quality business school is highly desirable to an employer, whether the graduate is from an M7 school or another still highly ranked institution.

Partially, this is a consequence of the fact that average salary and bonus is up only 3.6% at Stanford in the past five years, compared to increases of 25.3% at the University of Florida, or 18.6% at the University of Wisconsin, or 17.8% at the University of Maryland’s business school.

HIGHEST PAID MBAS IN 2013 WERE FROM WHARTON, TUCK, HBS, COLUMBIA & STANFORD

Of course, MBAs from the truly elite business schools remain the most highly compensated graduates. As noted earlier, the school with the highest average salary and bonus in 2013 was the Wharton School, where MBAs accepted jobs with average salary and bonus of $141,243. They were followed by MBAs at Dartmouth, Harvard, Columbia, and Stanford MBAs were next 

Average Salary & Bonus for the Top 50 Business 

Schools in the U.S.

2013 P&Q Rank & School	2013 Pay	2012 Pay	2011 Pay	2010 Pay	2009 Pay	5-Year Increase
1. Harvard Business School	$138,346	$142,501	$139,735	$131,759	$131,219	5.4%
2. Stanford GSB	$137,525	$140,459	$140,972	$131,949	$132,769	3.6%
3. Chicago (Booth)	$135,982	$135,653	$133,424	$126,779	$122,131	11.3%
4. UPenn (Wharton)	$141,243	$138,302	$137,311	$132,579	$123,741	14.1%
5. Northwestern (Kellogg)	$135,838	$134,001	$130,092	$123,996	$127,834	6.3%
6. MIT (Sloan)	$137,057	$139,035	$132,618	$125,905	$125,707	9.0%
7. Columbia	$137,654	$134,868	$134,233	$123,486	$123,150	11.8%
8. Dartmouth (Tuck)	$139,036	$138,713	$138,220	$128,013	$128,282	8.4%
9. Duke (Fuqua)	$135,101	$136,461	$128,666	$118,923	$120,474	12.1%
10. UC-Berkeley (Haas)	$134,078	$133,786	$129,776	$120,164	$121,124	10.7%
11. Cornell (Johnson)	$129,037	$127,368	$122,329	$112,039	$120,142	7.4%
12. Michigan (Ross)	$134,883	$134,360	$127,817	$116,201	$125,995	7.1%
13. Virginia (Darden)	$136,102	$131,906	$127,595	$119,278	$123,164	10.5%
14. UCLA (Anderson)	$123,353	$121,864	$119,109	$108,806	$08,286	13.9%
15. New York (Stern)	$131,975	$133,919	$128,888	$121,867	$124,112	6.3%
16. Carnegie Mellon (Tepper)	$131,181	$128,101	$117,650	$106,066	$117,359	11.8%
17. Yale	$126,013	$121,631	$125,735	$113,226	$117,274	7.5%
18. UNC (Kenan-Flagler)	$123,526	$118,195	$101,904	$111,327	$113,105	9.2%
19. Texas-Austin (McCombs)	$123,868	$123,177	$118,410	$108,886	$113,768	8.9%
20. Indiana (Kelley)	$113,898	$108,807	$106,195	$101,206	$107,221	6.3%
21. Emory (Goizueta)	$124,148	$124,066	$121,050	$100,300	$102,372	21.3%
22. Georgetown (McDonnough)	$118,620	$114,744	$111,721	$103,676	$106,012	11.9%
23. Washington (Olin)	$110,533	$106,009	$99,354	$90,767	$97,326	13.6%
24. Washington (Foster)	$118,759	$110,768	$97,970	$91,593	$87,177	36.2%
25. Vanderbilt (Owen)	$113,170	$108,889	$102,694	$93,351	$102,852	10.0%

2013 P&Q Rank & School	2013 Pay	2012 Pay	2011 Pay	2010 Pay	2009 Pay	5-Year Increase
26. Ohio State (Fisher)	$108,510	$102,162	$91,696	$91,628	$99,710	8.8%
27. Rice (Jones)	$115,693	$108,587	$108,175	$102,017	$100,975	14.6%
28. USC (Marshall)	$116,011	$109,841	$109,619	$101,810	$110,594	4.9%
29. Maryland (Smith)	$98,723	$101,604	$99,694	$91,269	$83,788	17.8%
30. Wisconsin	$109,293	$105,614	$105,333	$93,332	$92,152	18.6%
31. Georgia Tech (Scheller)	$108,055	$101,612	$97,376	$92,282	$92,298	17.1%
32. Notre Dame (Mendoza)	$115,296	$111,255	$104,763	$96,490	$99,604	15.8%
33. Penn State (Smeal)	$108,961	$91,563	$93,156	$95,480	$96,746	12.6%
34. Texas A&M (Mays)	$97,480	$104,723	$97,279	$91,246	$90,777	7.4%
35. Iowa (Tippie)	$95,058	$87,026	$94,003	$92,802	$85,463	11.2%
36. Minnesota (Carlson)	$117,972	$118,986	$110,349	$97,298	$106,264	11.0%
37. Rochester (Simon)	$92,262	$95,046	$81,117	$78,083	$82,808	11.4%
38. Michigan State (Broad)	$102,806	$96,579	$94,826	$92,359	$100,571	2.2%
39. SMU (Cox)	$100,748	$95,296	NA	NA	$92,329	9.1%
40. Boston University	$103,291	$101,204	$94,434	$90,157	$101,494	1.8%
41. Purdue (Krannert)	$100,609	$97,293	$89,720	$89,655	$98,980	1.6%
42. Arizona State (Carey)	$103,903	$100,984	$95,255	$92,101	$94,556	9.9%
43. Brigham Young (Marriott)	$110,216	$108,227	$103,369	$97,207	$98,500	11.9%
44. Illinois-Urbana-Champagn	$94,751	$94,331	$85,916	$95,276	$94,700	.1%
45. Boston College	$96,915	$102,423	$98,283	$91,282	$98,298	-1.4%
46. Wake Forest (Babcock)	$93,957	$100,897	$91,504	$88,390	$104,595	-10.2%
47. UC-Irvine (Merage)	$89,719	$80,809	$79,149	$76,981	$77,702	15.5%
48. Florida (Hough)	$84,281	$78,102	$78,522	$75,403	$67,288	25.3%
49. Georgia (Terry)	$86,096	$91,830	NA	NA	NA	NA
50. George Washington	$87,198	$89,508	NA	NA	NA	NA

Source: Poets&Quants analysis from publicly available data from business schools

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