Five Biggest Surprises In Fortune’s First MBA Ranking

2. The Methodology, If You Want To Call It That

At the risk of boring you to death about the nerdy details of how Fortune created its ranking, you just need to know what is under the hood of the list. Don’t worry, though. There are few moving parts in this ranking. In fact, you could just as easily argue that this is no ranking at all. It’s just a list of MBA programs based on last year’s starting salaries. There’s no attempt to judge the quality of the incoming students nor is there any effort to determine the quality of the academic and co-curricular experience. It’s also not indicative of the demand for a school’s graduates, something that is captured by surveys of major MBA employers.

Instead, some 65% of Fortune’s approach to ranking MBA programs comes down to average and median base salaries and the employment rate of a school’s graduates three months after commencement. That’s it. If ever there was a reductive view of business education, this is it. We have no issues with employment rates, even though they only measure whether a student gets a job as opposed to a job he or she really wants. But the outsized weight on these measures is out of sync with today’s MBA graduates who want more than a paycheck out of a career. Let’s add some context to this to show how out of whack it is: A 65% focus on pay and placement is nearly double the importance assigned to these metrics by U.S. News and Bloomberg Businessweek. It is nearly triple the emphasis in The Economist‘s ranking, and considerably more than The Financial Times, which assigns a 42% weight on those measures.

Placing so much value on base salary and little else adds no value to the marketplace. It’s readily available information published everywhere and any applicant can construct his or her own ranking based on that. It’s also impacted by the industry choices MBA graduates make (we’ll show how this is true in the following takeaway) and where they decide to go to work. No less critical, it’s an incomplete measure of compensation for graduating MBAs. Consider Harvard Business School. Six of every ten graduates last year earned median sign-on bonuses of $30,000 and 11% of the class received median other guaranteed compensation of $50,000. A significant percentage of the graduates also were given equity to take their jobs. These are elements of first-year MBA pay that are far more differentiating and representative of a school’s brand value than base salary.

And then there are the other two metrics that naturally favor elite schools that boast large graduating classes, putting smaller high quality MBA programs at a disadvantage. A so-called “brand survey” supplemented by interviews of “thousands of business professionals and hiring managers” accounted for 25% of the ranking. The professionals had to know “at least two of the schools” for their votes to count, making this “brand survey” little more than a popularity contest with no adjustment when a respondent names his or her own alma mater. The remaining 10% weight reflects the number of each school’s MBA alumni who are C-suite executives at Fortune 1000 companies, a metric that favors old school notions of size and largely ignores the most dynamic part of the economy as well as the largest employers of MBAs, the consulting industry. Besides, these C-suite execs graduated 30 to 40 years ago and, if anything, reflect a school's standing that would be 30 to 40 years old.

And here's another critical point. Fortune places numerical ranks on 69 MBA programs and there isn't a single tie. That's highly peculiar and suspect because we know there is clustering between and among schools that makes the difference between one rank and another statistically meaningless. Yet, Fortune hides the underlying index scores so readers are unable to put a school's rank in some kind of perspective.

What a missed opportunity.

3. Berkeley Haas No Longer A Top 10 MBA Program?

Among the more puzzling outcomes in this ranking is how UC-Berkeley's Haas School of Business placed: An uncharacteristically low 13th. For at least the past 20 years, the MBA experience at Haas has been ranked among the Top Ten by U.S. News & World Report and for good reason. Based on any objective data, the school attracts many of the world's best applicants, its faculty is among the world's best, and the career outcomes of Haas grads are enviably solid. A Haas MBA opens the door to any prestige employer in the world. The program is also a feeder into some of the most lucrative employment opportunities in the Bay Area, from the big tech giants such as Apple and Google to early-stage companies and startups.

How does Fortune's 13th-place ranking for Haas compare to other more credible rankings? Haas currently places seventh in U.S. News and eighth in Poets&Quants' latest composite ranking. The Economist believes Berkeley's MBA is sixth best in the U.S.

How to explain it? The ranking's methodology favors large schools whose students go into finance and consulting, industries that typically pay the highest starting salaries to MBA graduates. At Berkeley, roughly a third of the graduating class gravitates to the technology industry. The median base salary for an MBA in tech last year was $140,000--the overall class median for Haas' Class of 2020. That is $20,000 lower than the salaries paid to Haas grads that went into consulting and $10,000 less than Haas MBAs who accepted jobs in financial services. Add to that the nearly 12% of the class that went into biotech, pharma and healthcare jobs, an unusually high percentage for a business school. Those Haas MBAs were happy to accept jobs in that sector that paid $135,000 to start, $5,000 less than tech.

The result: Fortune ranks the school much lower than it actually is not on the basis of a program's quality or reputation but rather where its graduates prefer to work. Where you stand depends on where you sit, and more MBAs at Haas would rather sit in the most dynamic industry in the world economy.

Berkeley was also penalized in other ways by Fortune's methodology. A significant percentage of Haas grads get equity in their first jobs. In one recent year, the school disclosed that 36% of its MBA grads received either stock or stock options with their job offers. While it would be difficult to put a value on a stock grant, it nonetheless is an important piece of compensation that would dramatically change the school's standing on the ranking. It's also note worthy that Fortune's decision not to include sign-on bonuses in its pay numbers hurt the school. After all, the second highest signing bonuses--averaging $36,045--were paid to MBAs who went into technology.

And then finally there is the issue of employment. For Berkeley's Class of 2020, just 86.9% was employed within three months of graduation. Of course, this was in the middle of the pandemic and employment stats among the best MBA programs in California tend to be lower, partly because many of these grads want jobs in startups or early stage companies that require independent searches. These companies rarely have formal recruiting initiatives that lead to early offers before graduation.

The same phenomena was at work in explaining how NYU Stern did better than MIT Sloan in this ranking. Stern, which placed seventh, funneled a third of its graduating class into higher paying jobs in finance and consulting, with just under 17% going into the tech sector. At MIT, on the other hand, which placed just below Stern with a rank of eight, less than half the graduating class accepted jobs in finance and consulting. Nearly 28% went into tech—11 percentage points higher than Stern. Merely because more students at MIT prefer jobs in tech, NYU was able to outrank Sloan in this ranking. Surely, there is something wrong with that.

Fortune's approach to ranking MBA programs literally puts pressure on schools to push its graduates away from jobs in the social sector, the government and education, consumer products, healthcare, energy, technology and any other field that doesn't pay freshly minted MBAs as much as consulting or finance.

You could kindly say that Fortune's ranking doesn't play to either Berkeley's or MIT's strengths. Or you could ask how mindlessly are the editors for allowing such trash to be published?