One of the more awkward moments for any dean is when his school drops completely out of an important and closely-watched ranking. That happened earlier this year to the Schulich School of Business, the only one of the seven Canadian schools to disappear from The Financial Times‘ 2015 global ranking of the best full-time MBA programs.
The egg-on-your-face moment prompted Schulich Dean Dezsö J. Horváth to issue a lengthy memo in which he vigorously attacked the methodology of The Financial Times, making a fairly cogent argument that the FT ranking is significantly flawed. The memo, obtained by Poets&Quants, specifically targets the British newspaper’s use of a Purchasing Power Parity (PPP) formula to adjust the actual salaries of alumni surveyed by the FT.
Of course, the attack is a bit self-serving, if only because it occurs in a year in which the school, ranked 66th a year earlier, lost its ranking entirely. Horváth puts the disaster in the context of other Canadian schools, without ever noting that Schulich is the only Canadian full-time MBA to lose FT ranking status. “The results for all Canadian schools in the 2015 MBA ranking were on the whole disappointing,” he wrote. “Every single Canadian school that was in the FT MBA ranking the previous year dropped in the 2015 ranking – part of an ongoing trend that has taken place for nearly a decade now. As a result, today there is no longer a Canadian business school ranked by FT in the top 50, and almost all Canadian schools are now clustered in the bottom rungs of the ranking. Two of the top business schools in Canada, the Ivey School of Business at Western and the Desautels Faculty of Management at McGill, sit on the edge of elimination from the ranking, in 97th and 100th place respectively.”
‘PPP DOLLARS ARE NOT REAL’
In fact, the University of Toronto’s Rotman School of Management led the Canadian schools, ranking 53th overall, down only two places from 2014. Rotman maintained its top international billing on research, as measured by faculty articles in noted journals, jumping to the fourth spot globally this year from ninth in 2014. The University of British Columbia’s Sauder School of Business placed 81st, while Queen’s Smith School of Business and the University of Alberta’s School of Business were tied at 86. Alberta rose 14 places from its rank of 100 a year ago.
In the memo, Horváth said he has publicly gone on record for the past five years stating that the Canadian business schools are being disadvantaged in the FT ranking because of the Purchasing Power Parity (PPP) formula that FT uses to calculate salaries. “The PPP formula disadvantages Canadian schools in a number of ways,” he maintains. “On the one hand, this formula discounts the salaries of graduates working in Canada by approximately 20% vis-à-vis graduates working in the U.S. and other developed countries. At the same time, the PPP formula benefits business schools from emerging economies, particularly in Asia, by doubling or even tripling their actual average salaries.
“As a result, a growing number of the business schools in the FT ranking are now from emerging economies with inflated salary levels directly resulting from the use of a PPP formula,” added the dean. “By using a PPP formula, FT is reporting that the average salaries of graduates from various Chinese and Indian schools are equivalent to $120,000 or higher. This would be tremendous if PPP dollars were real – but they are not. The fact is, these graduates earn less than half of what the graduates of most Canadian business schools earn when using a standard U.S. dollar exchange rate.
SCHULICH DISAPPEARED BECUASE OF ‘UNUSUALLY LOW’ AVERAGE SALARY AND PERCENTAGE SALARY INCREASE REPORTED BY THE CLASS OF 2011
“Compounding the problem caused by the use of a PPP formula is the fact that average post-MBA salaries earned by graduates working in Canada tend to be substantially less than graduates working in the U.S. and Europe, and the salaries earned by executives working in Canada also tend to be much lower on average. This makes it very difficult for any of Canada’s top business schools to do well in the FT ranking.”
Still, six other Canadian schools made the FT ranking this year. How could Schulich fall at least 35 places not to make the top 100? Horváth says the chief reason was related to what he called an “unusually low average salary and percentage salary increase reported by a segment of the school’s graduating Class of 2011.” The Financial Times had surveyed that graduating class for its compensation data. “The reason I say the reported salaries were unusually low is that we know from published data over the past ten years that Schulich has always been in the top three Canadian schools when it comes to average salaries immediately following graduation,” he wrote. “Additionally, we also know that Schulich has always been among the top three or top four Canadian schools for salaries three years after graduation as reported by the Financial Times.”
The single biggest factor in the Financial Times’ ranking–which takes into account 20 different metrics–is compensation, with 40% of the newspaper’s methodology based on adjusted salaries three years after graduation and average salary increases from pre-MBA levels. Look behind the overall rankings and you’ll generally find that schools making big progress have alumni reporting higher salaries to the FT. MBA alumni at Ceibs, for example, posted the highest year-over-year gains, an increase of more than $22,000 to $149,504. Significant changes in these numbers occur due to sample size, exaggeration by a survey respondent, or even worse, the unnecessary and flawed adjustments made by the British newspaper’s methodology. The FT even admits that its three-year weighted salary metric “includes data for the current year and the one or two preceding years where available” so it’s not exactly a true three-year average.