MBA Rankings Largely ‘Follow The Money’

‘IF YOU WANT TO RISE IN THE RANKINGS, SALARY AND EMPLOYMENT IS WHERE YOU PUSH’

Turner believes that knowing the rankings largely are about measuring compensation and placement “sends a signal to all the schools that if you want to rise in the rankings, it seems like salary and employment is where you want to push.”

A Ph.d. who performed the analysis of the rankings, Turner says applicants need to consider the nuance of career: geography, industry, and function. “It would behoove the student much more to examine the average, median, low and high salary for a specific job function across several schools, than it would to simply look at their average salary across all jobs,” he says. “Geography and careers play out in special ways:  The Bay Area is going to be driven by high tech jobs.  NYC is going to be driven by investment jobs.  If you aren’t interested in those jobs in those areas, the salary benefit and its reflection in the rankings simply won’t accrue to you.”

WHEN IT COMES TO MBA PAY, GEOGRAPHY IS OFTEN DESTINY

Geography, in fact, is often destiny, when it comes to MBA pay. “Few adjust for cost of living so schools that are not on the east or west coasts are always disadvantaged,” adds Matt Turner. He points out that starting MBA salaries–which are key metrics in both the U.S. News & World Report and The Economist rankings–are typically 3% to 14% higher in New York and San Francisco than they are in Chicago or Dallas. “It’s not that much but the schools are clustering tightly in these rankings so the slightest little difference in salary can make a big difference in the overall rank.”

McCombs’ admissions director from 2001 to 2004, Turner has spent roughly 80% of his time during the past five years handling the institutional research and data reporting for the rankings. He’s among the sharpest observers of the differences and flaws of rankings methodologies. Like most business school officials, Turner is critical of what he calls the romance of rankings.

THE ROMANCE AND SEDUCTION OF AN MBA RANKING

“Rankings may seduce us into believing they measure value and merit,” he says, “but as with many competitive venues (think pre-season football polls), there’s often more charm than substance, chance than merit, data than meaningful information.”

The heavy reliance on compensation and placement data may especially be more about charm, chance and just plan data. “Your MBA degree is setting you up for a lifetime achievement, not your first job out,” believes Turner. “And yet that is what the most weight is on (in the U.S. News and Economist surveys). It doesn’t speak to your satisfaction in your job. It just speaks to your salary. The Financial Times is at least acknowledging the need to look beyond the first year by measuring it three years out. But you can quibble with any single metric.”

And then, there are other rather formidable issues when it comes to counting pay: every ranking calculates compensation differently and once you examine the numbers they tend to fail the Bill Clinton “arithmetic” test: They just don’t add up.

EMPHASIS ON MBA PAY AND PLACEMENT VARIES FROM ONE RANKING TO ANOTHER

For one thing, the emphasis on MBA earnings and placement varies from one ranking to another. At Forbes magazine, for example, it essentially accounts for 100% of the weight because Forbes does a return-on-investment calculation with the salary data it collects form alumni five years after they graduate with their MBAs. Compensation and job placement accounts for 54% of the weight in the Financial Times’ global MBA ranking.

Only one ranking doesn’t follow the money. Bloomberg BusinessWeek’s biennial MBA rankings are based entirely on the satisfaction of business schools alums (45%), corporate recruiters (45%), and published faculty research (10%). If alums express any significant dissatisfaction with their starting salaries, those opinions could singificantly hurt a school’s standing in the BusinessWeek survey. But the ranking itself does not measure the compensation of a school’s graduates.

For another, each ranking has a different way to follow the money. U.S. News simply takes starting salary and bonuses reported by business schools. The Economist measures only starting salaries reported by the schools. The Financial Times looks at salaries three years after a person gains the MBA and the increase from pre- to post-MBA salaries–adjusting all of the salary data to account for the purchasing power of a dollar in any given country.

FOR A WHARTON MBA, THE NUMBERS RANGE FROM $113,659 to $225,000

The upshot: All the numbers differ. At any given time, they reflect different classes, differently sized samples–at the same schools. The numbers for Wharton range from a low of $113,659, the mean salary of a 2010 graduate according to The Economist, to a high of $225,000, the mean salary of a Class of 2006 graduate in 2010 (see table on following page).

Forbes’ entire ranking is all about money–a calculated return on investment that is essentially based on alumni-reported data to the magazine. Forbes compares alumni earnings in a grad’s first five years out of business school to their opportunity costs which are two years of forgone compensation, tuition and fees.

Not content to go with the raw numbers, Forbes adjusts the median five-year MBA gain for cost-of-living expenses and discounts their earnings gains “using a rate tied to money market yields,” says Forbes. “The five-year MBA gain represents the net cumulative amount the typical alumni would have earned after five years by getting their MBA versus staying in their pre-MBA career.”

(See following page for table on the key pay data currently used in major MBA rankings)

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