MOST OBVIOUS FLAWS IN THE FINANCIAL TIMES METHODOLOGY
The Financial Times global ranking is the most closely followed in Europe and Asia, while U.S. News entirely U.S.-centric ranking has become the most influential in the U.S. The FT’s methodology is based on 20 different metrics, including several that tend to favor non-U.S. schools. Among other things, metrics that add score points to a school’s standing include the percentage of students, faculty and trustees who carry passports from a country where the school is not located, whether students and alumni worked in foreign countries, whether students had an international course experience and whether the school requires students to learn extra languages prior to graduation. What any of these criteria have to do with the quality of an MBA degree is a matter of opinion.
Often, an even greater impact on a school’s rank can be the result of the FT’s decision to use a purchasing power parity (PPP) formula to convert and count actual salary data–the most heavily weighted metric in the methodology. Such currency gymnastics favor schools that supply graduates to countries with high rates of poverty. With the PPP adjustment, for example, it’s probable that CEIBS would not have finished in the top ten. The school’s latest employment report shows that the median base salary for MBAs was $67,282. The FT’s adjusted salary figure for CEIBS alumni is $162,858.
This adjustment has an especially negative impact on all U.S. schools because the vast majority of international students who get an MBA in America want to live and work in the U.S. where their compensation would not be inflated by the PPA filter. Although 34% of this year’s graduating class at Harvard Business School were international, for example, only 13% of the class took jobs overseas and that percentage includes some U.S. citizens. At INSEAD, in contrast, nearly 70& of the MBA students from Asia Pacific (67%), Africa and the Middle East (57%), and Latin America (63%) returned home to regions where a PPP adjustment would inflate their actual compensation.
FT PUTS HEAVY WEIGHT ON SALARIES–BUT NOT TOTAL COMPENSATION WHICH IS MORE IMPORTANT
What’s more, even though the FT is putting a 40% weight on these pay numbers, they fail to account for total compensation—just salary. In the U.S., a good many MBAs from elite schools often get stock options (at Stanford, 32% of the newly minted graduates last year reported stock compensation) and significant annual bonuses that would put their schools well ahead of many of the institutions that are routinely ranked higher by the Financial Times.
Unlike U.S. News, moreover, the FT pays no attention at all to incoming student quality in its ranking–another reason why U.S. schools do less well on this list. GMAT and GRE scores and undergraduate grade point averages, all key components of a business school admission decisions–are ignored. So are acceptance rates which also tend to be lower at many of the best U.S. schools. At Stanford, for example, only 5% of the candidates who apply for admission get into its MBA program. At INSEAD, which does not report this number, the acceptance rate is routinely above 30%, according to insiders.
Another issue with the FT ranking is that the newspaper fails to reveal the underlying index scores that allow it to crank out the numerical rankings. Those scores show whether a school’s rank is statistically different among other schools ranked nearby. In most rankings, these index scores tend to cluster in close bands and often show that there is no meaningful statistical difference between a school ranked 45th and one ranked 50th. The FT concedes that clustering is a reality and that there are four different groups of schools on its list of the top 100. In a footnote, the newspaper points out that the top 14 schools, starting with Stanford and ending with Hong Kong University Science and Technology, are in a top group. The second cluster, headed by Yale SOM, spans the schools ranked 15th to 44th. “Differences between schools are relatively small within this group,” the FT admits. The 48 schools in the next group are “similarly close together.” Just how close is unknown because the FT won’t publish the index numbers for each school.
HOW RICE UNIVERSITY’S JONES SCHOOL CLIMBED 19 PLACES THIS YEAR
Despite the deficiencies in how the FT parses salary data, Stanford alums again topped the list for the highest paid MBAs in the world. Stanford alumni three years removed from school brought home a weighted salary—adjusted by PPP as well as for what the FT calls “variations between sectors”—of $214,742, up 9.9% over $195,322 a year earlier. It was the first time MBA alumni reported base pay that tipped over the $200K mark. Those salaries were considerably higher than the $177,157 at INSEAD whose alums saw a smaller 5.7% increase from $167,657. While last year INSEAD was just slightly ahead of Stanford on increases in salary, 95% versus 93%, the two schools reversed places. Stanford alums reported a 114% rise in salary vs. pre-MBA levels, while INSEAD grads had a 105% jump. Along with the higher placement on the 50 academic journals used for the FT research ranking, that was all Stanford really needed to leap over INSEAD to claim first place this year.
“Much will be made of Stanford’s rise to #1,” believes Matt Symonds, co-founder and a director of Fortuna Admissions, a leading MBA admissions consultant, “and with those eye-popping salary figures above $200k, this result was to be expected. INSEAD has had a good run with two years at #1, and we have seen a sharp rise in enquiries over the past 24 months with the global recognition the FT results have brought.The school also benefits from an excellent ROI for the increasingly popular one-year course format, and the much-reported Trump effect that has encouraged a significant number of business school applicants to look beyond the U.S. for their MBA experience. But this result is part of a wider trend that we saw in The Economist ranking last November, where many US schools are in the ascendancy with the strengthening US dollar in 2017.”
As one might expect, given the emphasis on salary in the FT survey, changes on these metrics can have a big impact on a school’s year-over-year movement. Yet, it’s possible that change can be impacted by sample size or the misreporting of the self-reported data by alums. Rice University’s Jones School jumped 19 places this year after alums’ weighted salary rose to $139,189, from $130,852 a year earlier. That boosted the percentage increase over pre-MBA salary as well to 118%, from 97% last year. The school also did better on a variety of other metrics counted by the FT, including the program’s value for money, up to a rank of 56th from 64th, and career progress as judged by alums, ranking 87th versus 94th last year.
Declines in the FT’s crucial pair of pay metrics can be devastating for a school. At University College Dublin’s Smurfit Graduate Business School, alumni salaries fell by more than $10,000 to $102,643, from $113,094 last year. That helped push down the increase in salary over pre-MBA levels for alums to 63%, eight percentage points lower than the 71% bump a year earlier. In turn, Smurfit also lost ground in the FT’s “value for money” metric, slipping 14 places to a rank of 30th from 16th last year. The impact of these changes on the school’s rank this year? The school’s MBA program very nearly fell off the list for the first time in 19 years, careening 24 places to a rank of 94th from 70th in 2017. It was the second deepest drop of any school that managed to stay within the top 100.