How GMAT Scores Impact Starting Salaries

 

How GMAT Scores Increase Starting Salaries

Your GMAT is your destiny!

Sounds a bit overdramatic, right? When it comes to starting salaries for MBAs, it might just be true.

That’s the contention of Veritas Prep, which produced an infographic showing the correlation between higher GMAT scores and higher starting salaries. Borrowing a formula from the now-defunct MBA Show Blog, Veritas Prep has boiled the connection between GMATs and salaries down to a simple formula:

325 x GMAT Score – $123,000 = Salary

The formula stems from the work of Jose Ferreira, the founder and CEO of Knewton. In a study, Ferreira found that students gained $3000 in pay for every ten point increase on the GMAT (and vice versa). And that pay widens exponentially over time according to Ferreira. “…If you get 100 points better on the test, the difference between a 600 and a 700 GMAT, that’s $30,000 and that’s just for the first year alone. And that number, of course, widens over time.”

Alas, Ferreira’s research fails to factor in a number of variables. As John Byrne, Poets and Quants’ Editor-in-Chief, points out, “the study fails to take into account job performance or advancement over a career.” It also doesn’t factor in the types of industries or positions where graduates land work (let alone the cost-of-living in various locales). Ferreira’s data, which relies on overall averages instead of percentiles, is also vulnerable to being skewed by higher salaries at the top end.

However, Ferreira’s research reinforces a self-fulfilling cycle: The best schools attract students with the highest GMATs. This, in turn, leads to the highest starting salaries. “There is virtually no daylight between who’s got the highest starting salary and who’s got the highest GMAT score all the way down the list (of ranked schools).”

So how were the “325” and “$123,000” numbers in the formula derived? We’re not quite sure. The formula was created by Miro Kazakoff and Tom Rose, MIT Sloan grads and the hosts of the MBA Show. Both entrepreneurs (with Kazakoff now teaching at Sloan), the hosts embedded Ferreira’s $3000 per 10 GMAT point parallel into their formula.

For example, let’s say an applicant achieves a 690 GMAT – the median score at Georgetown (McDonough) and Notre Dame (Mendoza). Here is what this grad should expect to earn:

325 x 690 = 224,250 – $123,000 = $101,250.

Not a bad start…but our grad would’ve earned $104,500 if he or she could’ve broke the 700 mark (Better call Veritas Prep).

As Kazakoff notes in the podcast covering this formula, students can also apply this formula to compare job offers against how much they should be making. He also adds that applicants can run this formula to see if an MBA program provides a strong ROI (based on their GMAT score).

So how much should graduates at top schools expect to earn? Not surprising, the top earners were Harvard (730 GMAT / $125,000 starting salary), Stanford (729 / $125,000), and Wharton (725 / $112,368). Among salaries, Cornell (Johnson) grads punch well above their GMATs. Despite an average GMAT hovering around a 700 average (U.S. News reports 691), Johnson’s $106,100 starting salaries are actually higher than schools with higher GMATs, including Dartmouth (Tuck), the University of Michigan (Ross), and the University of Virginia (Darden).

Yale, known for sending a higher percentage of students into the public sector and non-profits, also scored low on salary ($98,324) despite an enviable GMAT average (717). New York University (Stern) might be considered another disappointment on this scale. Despite their GMAT average hovering near 730, NYU grads barely crack $100,000 to start, earning a salary equivalent to Darden grads (who are over 25 GMAT points below them on Veritas Prep’s chart).

Despite these anomalies, the formula’s results are quite informative. To see how the top 18 schools fare using this formula, click on the next page to check out Veritas Prep’s infographic.