A Really Good Gig: Why B-School Faculty Are So Well Paid by: Roger L. Martin, Retired Dean of Rotman School of Management on June 29, 2020 | 5,461 Views June 29, 2020 Copy Link Share on Facebook Share on Twitter Email Share on LinkedIn Share on WhatsApp Share on Reddit Whenever I observe an anomaly in my daily life, I tend to file it away. It recedes to the background but never really goes away. Sometimes it stays in my mental filing cabinet for decades – with a big question mark on it. Then another stimulus strikes me and the anomaly is explained. One such anomaly just got resolved last week after being salted away for nearly two decades. The anomaly concerned the starting salaries in North American business schools for freshly-minted business PhDs hired into tenure-stream Assistant Professor positions. I observed the anomaly while serving as Dean of the Rotman School of Management at the University of Toronto from 1998 to 2013. We started in 1998 with a faculty of 36 full-time, tenure-stream faculty of variable quality. By 2013, the faculty stood at approximately 120 and its research output was ranked solidly top ten globally by the Financial Times. We took very seriously the task of building a world-class faculty, which meant hiring a lot of Assistant Professors – and good ones. They were typically pretty young, actually similar in age to our incoming MBA students. They typically had an undergrad degree from which they proceeded directly into a Ph.D. program, which they completed (generally) in 5 years. In contrast to most academic fields, business Ph.D. graduates don’t have to work as a post-doc for two to five years before qualifying for a tenure-stream position. As a result, they are typically in the mid to late twenties when they start as an Assistant Professor. Modern full-time MBAs (as was the case at Rotman) have between 4 and 5 years of work experience on average, so they arrive for their MBA in their mid to late twenties. MARKET PRICE FOR A NEWLY MINTED PhD? MORE THAN $150K This gave rise to the anomaly. The market price of these freshly-minted PhDs – especially if in finance, accounting or strategy – was in excess of $150,000/year. (Since I stepped down in 2013, more than 7 years ago, who knows what it is now!) It struck me as odd that it was such a lucrative job from inception. It is interesting to compare it to the MBAs. Take the Financial Times 2013 full-time MBA rankings for example and consider the average salary three years after graduation statistic. For only ten U.S. business schools (the usual suspects) is that salary above $150,000. Those students, who start business school at the approximately the same time the similarly-aged Assistant Professor starts earning $150,000, have to wait five years (two in school paying not earning and three more in their post-MBA job) to get to the day-one salary of those Assistant Professors. Remember too, those ten schools pump out only about 3% of the U.S. MBA graduates each year. The remaining 97% are salary pikers compared to the day-one Assistant Professors. And those poor MBAs would be even more frustrated to know that while they pay for their two years of schooling, those business PhDs actually get paid to acquire their degree. Their tuition is free and they typically get a sizable annual stipend on top! These Professors were talented and hard-working people. I had no complaints about that. I was just staggered that the market-clearing price for their starting service was so high – and stably so. If you offered 10% less than the going rate, they laughed at your offer. But I just salted it away in the back of my brain; that is, until this week when I was looking at the National Center for Education Statistics data for another article that I was writing. That is when I noted that the number of business PhDs graduating every year was strikingly tiny compared to the number of business master’s and bachelor’s graduates. That caused me to crunch the numbers and that made the anomalous result totally understandable. I calculated the number of student-years by discipline that need to be taught every year. I used the simple assumption that if x number of students earned their bachelor’s degree in a given year, there were 4x students that needed to be taught in that discipline during that year. It was 2x for master’s and 5x for Ph.D. For the most recent year in the dataset (2016-2017), that meant that approximately 10 million student-years needed to be taught across American four-year and graduate education, of which about 2 million were in the business discipline. Then I asked: relative to that teaching requirement, how many new PhDs are minted each year? And the answers can be seen below: AACSB ACCREDITATION REQUIRES THAT 70% OF CLASSES ARE TAUGHT BY TENURE-STREAM PROFS The anomaly is no longer a mystery. Business education has a structure completely unlike any other educational discipline. The annual Ph.D. production relative to its educational requirements in business (1.7 graduating PhDs per thousand student-years) is exactly one-tenth the relative magnitude of higher education overall (17.5) and one-quarter the next lowest discipline (humanities at 6.6). There is a huge structural supply shortfall relative to all other disciplines – and it isn’t even remotely close. The statistics go back almost fifty years and the business Ph.D. under-supply is amazingly persistent. The US average student-years per Ph.D. graduate was 15.6 in 1970-1971 and for the business discipline was 1.5. Education rose from significant undersupply (6.6) to right to the mean (18.2 vs. mean of 17.5), social sciences rose toward the mean (from 6.8 vs. 15.6 to 9.1 vs. 17.5), and computer science and engineering experienced a supply tightening (14.3 to 11.4). But none are even vaguely in the ballpark of business. In addition, as Deans know, if you want to be AASCB accredited, and most North American schools desperately want to be, you have to demonstrate that 70% of your classes are taught by a full-time tenure-stream professor. As a result, the demand is kept at a high level. Ph.D. programs would probably have to double to make even a small dent in the supply shortage and because Ph.D. programs are by far the most expensive to run in the entire business school, that just isn’t going to happen. As a consequence, this isn’t some kind of weird anomaly: it is just a really good gig! Roger Martin was dean of the Rotman School of Management from 1998 to 2013. Poets&Quants’ named Martin Dean of the Year in 2013. DON’T MISS: WHAT BUSINESS SCHOOL PROFESSORS ARE PAID MAY SURPRISE YOU Comments or questions about this article? Email us.