What happens after you graduate with an MBA? How much does total pay go up compared to pre-MBA pay? Is it worth it to get an MBA?
A comprehensive research study of alumni from an AACSB-accredited business school ranked in the Forbes Top 50 provides answers to these important questions. Mark Johnston, Keith Whittingham and I collected data from 550 MBA alumni of the school for a 2010 peer-reviewed study published in the Journal of Education for Business.
To make this research relevant to most prospective MBA students, this study is based on salary data from a high-quality business school that typically is ranked in the Forbes Top 50 but is not one of the most elite schools, such as Harvard or Stanford. For salary data on all of the Forbes Top 50 business schools, see the 2013 Forbes business school ranking.
The data included:
- Pre-MBA Pay (salary plus bonus) for the year before matriculating,
- Post-MBA Starting Pay (salary plus bonus) when graduating, and
- Fifth Year Pay (salary plus bonus) received five years after graduation.
All replies to the mail survey were anonymous to insure the privacy of the respondents. The results presented are for full-time students unless otherwise noted, and all the numbers are median values unless otherwise specified.
This is what we learned from our study:
Post-MBA Starting Pay
Post-MBA Starting Pay was up 50% over Pre-MBA Pay for full-time students. This is consistent with the 50-60% increase reported in my 1994 book, The MBA Advantage (page 37), and with the 51% increase published in my 1997 book, The Success Principle (page 242). This suggests that the 50% step-up in pay at graduation has been stable over time and across different schools surveyed.
As an example, if your pay before starting an MBA happened to be $50,000, you might expect to be offered $75,000 salary plus bonus (up 50%) at graduation.
For part-timers, Post-MBA Starting Pay increased 41% over Pre-MBA Pay.
Fifth Year Pay
By the end of five years post-MBA, Fifth Year Pay was up 80% over Post-MBA Starting Pay for full-time students. Again, this latest data is generally consistent with results reported in The MBA Advantage (page 38) and in The Success Principle (page 243).
To continue with our example, if you were paid $75,000 at graduation, you might look forward to earning 80% more, or $135,000, after five years on the job.
For graduates of the part-time program, the gain over Post-MBA Starting Pay was 56%.
A good investment
These results show substantial increases in pay after earning an MBA, suggesting that for most students an MBA degree from a quality school is a good investment. Confirmation comes from the 2013 Forbes business school ranking, which shows that for virtually all of the Top 50 schools, the payback period for the investment is four years or less.
Effect of pre-MBA work experience on pay
Post-MBA Starting Pay tended to increase $2,822 for each year of work experience, but the effect was weak. There was essentially no relationship between years of work experience and Fifth Year Pay.
For part-time students, there was very little association between years of pre-MBA work experience and pay after graduation.
In a previous post I examined the costs and benefits of waiting to start an MBA to get work experience and found that generally it pays to start as soon as possible.
Pay by area of MBA concentration
Post-MBA Starting Pay for Finance majors was about $1,000 higher than for Marketing majors. But by the end of five years, Fifth Year Pay was identical for Finance and Marketing majors. However, unlike Marketing, there were a number of Finance majors making several times their Post-MBA Starting Pay by the fifth year.
Gender differences in pay
Across all concentrations, Post-MBA Starting Pay for women was about 87% of that for men. The difference was slightly less for Fifth Year Pay, with women earning about 88% of men’s pay.
Looking only at Finance majors, women were paid about 90% of men’s pay at graduation, and were averaging only about 70% by the fifth year. But for Marketing majors, men and women were paid almost exactly the same, both for Post-MBA Starting Pay and for Fifth Year Pay.
The reasons for the differences are unknown, but the numbers are consistent with other compensation studies for men and women working in the same industry. See, for example, the alternative theories presented on Wikipedia.
GMAT scores and pay
Statistical tests showed that there was no correlation whatsoever between GMAT scores and either Post-MBA Starting Pay or Fifth Year Pay. Some of the most successful graduates had relatively low GMAT scores, and vice versa. This was true for both full-time and part-time students.
Although the GMAT is useful for sorting out those students who will do well in business school, it has shown no predictive power for post-MBA success. The reasons are explored in a previous post.
Advice to current MBA students
Respondents were asked, based on their experience, what career advice they would give to current MBA students. Their average responses are shown in bold.
- Start with a prestigious large company and learn as much as you can? Agreed
- Work for a variety of companies rather than staying with one firm? Not sure
- Seek cross-functional experience rather than staying in one field? Strongly agreed
- If you do excellent work, you can trust your company to promote you? Not sure
- If you see yourself as an entrepreneur, don’t wait to pursue your dream? Strongly agreed
Satisfaction with their MBA degree
Respondents were asked to indicate their agreement or disagreement with these statements regarding satisfaction with their MBA degree (answers in bold):
- Your MBA degree has provided you with wider career choices. Strongly agreed
- You could have done just as well in your career without an MBA. Disagreed
- Your MBA helped you develop a network of top professionals. Not sure
- Your MBA helped provide faster salary growth. Agreed
- Your MBA was a good investment of time and money. Strongly agreed
When asked, “If you had it to do over again, would you still go for an MBA degree?” 94% said yes. For comparison, a 1995 survey of MBA graduates indicated that 92% would go for an MBA again (The Success Principle, p. 233).
Is it worth it to get an MBA? From a financial standpoint, if you were to do as well as the average student in this study, the answer would be yes. But as I noted in a previous post, there are many other reasons to consider an MBA besides financial gain, such as wider career choices, enhanced personal credentials, and the graduate-level knowledge for its own sake. All of these should be weighed in making your decision.
We live in a fast moving world. To paraphrase Louis Pasteur: “Change favors the prepared mind.”