A trade group representing MBA career officials and employers is urging business schools to no longer report “other guaranteed compensation” in their MBA employment reports.
In an update of standards for how schools report pay data, the MBA Career Services & Employer Alliance today (June 30) said it believes that the data point is an “unreliable measure” of compensation and should be eliminated.
This category of pay represents guaranteed annual bonuses paid to a minority of newly hired MBA graduates mainly from the most highly ranked business schools. In many cases, it can amount to a significant amount of the first-year pay that MBAs receive. In fact, some of the highest compensation achieved by graduates is often a function of these additional bonuses which can exceed base pay and sign-on bonuses which are unaffected by the rule change.
AT STANFORD GSB, OTHER GUARANTEED COMP WAS REPORTED BY 35% OF GRADS
At Stanford’s Graduate School of Business, for example, 35% of last year’s graduates reported average other guaranteed comp of $74,665, far more than the average sign-on bonus of $23,636. Stanford grads who landed other guaranteed compensation reported a wide range of bonuses, from a high of $400,000 to a low of $8,000. Including this compensation in the median total pay received by Stanford MBAs brought their total compensation to $163.827 last year. Excluding it would lower total compensation to $149,750, the sum of base salary and sign-on bonuses, adjusted for the percentage of students receiving signing bonuses..
At Columbia Business School, other comp was received by 22% of the graduating class last year, with a median of $25,000 and a range of between $300,000 and $2,000. At Harvard Business School, some 13% of the Class of 2016 reported median other compensation of $32,000, with a median of $125,000 for MBAs who joined hedge funds and investment management firms. Some 12% of Wharton’s MBA graduates received these guaranteed bonuses last year, with a median of $20,400 and a range of between $175,000 and $3,600.
The disclosure of these numbers generally benefit the more elite schools whose graduates are most likely to receive other guaranteed compensation. In almost all cases, the reporting of such numbers has been conservative because it does not include many other elements of MBA pay including tuition reimbursement, relocation expense reimbursement, profit sharing, stock and stock options, car allowances or 401K matches.
‘RESEARCH SHOWED THAT THE METRIC HAD BECOME AN UNRELIABLE MEASURE’
In recent years, the only elite business schools that have decided against reporting other compensation are Dartmouth College’s Tuck School of Business and Northwestern University’s Kellogg School of Management. Reporting of this data in lower-ranked schools is rare largely because few if any of their MBA graduates receive these additional bonuses.
The organization said it made the change “to promote the sharing of valid information and in recognition of research that showed that Other Guaranteed Compensation had become an unreliable measure.”
“A lot of schools weren’t reporting it anymore and it was also confusing because schools were interpreting it differently as well,” says Megan Hendricks, executive director of the alliance.
ON SPECIALTY MASTERS, SCHOOLS WILL NOW REPORT SIX-MONTH JOB DATA
The elimination of other guaranteed compensation was among a number of changes in reporting standards for full-time and part-time MBA programs as well as specialty master’s programs. The other significant change in full-time reporting was to urge schools to offer more detailed breakouts of job offers and pay in specific countries. Previously, for example, the standards allowed schools to report statistics for all of Europe. The new rule changes specifies that the numbers should be broken out for such major countries as the United Kingdom, Germany, France, and Spain.
The group also changed the job offer data for specialty master’s program, extending the date by which such data is reported to six months after graduation from three months. “Those students often take longer to find a job,” explains Hendricks as the reason for the change.
The changes are effective with the Class of 2018.