The truth about B-school salaries

IIM Ahmedabad

This is indeed THE longest post on our blog. But this post essentially sums up what we believe in and what actually the aspirants and everyone else ought to know.

Prof Saral Mukherjee, Chairperson, IIMA Placement Committee has expressed his views on  the hype surrounding the inflated and incorrectly quoted salary figures and sensationalism surrounding this created by the media. Professor Mukherjee says,

” Have you ever marvelled at the salary packages being offered at B-Schools? The more they reach stratospheric realms, the more intriguing the news reports become. Recently, a leading daily published an unverified report stating that an IIM Ahmedabad (IIMA) student had bagged a salary of more than 1.44 crore rupees. The news article soon became one of the most read news articles on the newspaper’s website. Stratospheric salaries equal highest readership, the equation seems very clear. The article was misleading and the IIMA Media Cell published a rejoinder in its blog stating the figure as incorrect. As to be expected, the rejoinder did not get as many reviews as the original report.

The publishing of the rejoinder in a blog was in some sense a fundamental yet silent shift. It signalled the unwillingness of the student body to be mute spectators when incorrect information is published. It signalled the use of a new media in connecting to the outside world. It signalled to the world that IIMA students are mature enough to disassociate themselves from a very flattering portrayal if the portrayal is not true. The truth about highest salaries was always known on B-School campuses. You just kept silent when the press glossed over the minor details.

The truth is that the readers are being fed garbage. The highest salary offered in a B-School is typically a dollar denominated salary. The first trick in sensationalism is to convert the dollar figure to a rupee amount. The two are not comparable as the dollar salary would not be earned in India but in a country with a substantially higher cost of living. The second trick is to refrain from mentioning the amount of bonus. Bonus component of a salary package is contingent on performance. Consider a firm which stipulates that performance linked bonus would range from a minimum 40 per cent to 300 per cent. Which number should be used for reporting – 40 or 300 or an average value? Some firms may have a one-time sign-in bonus. The assumptions about bonus component are of course too mundane a detail to grace a front page report. Similarly, I am sure, readers would like to be spared the reporting of exchange rates at which the dollar-rupee conversion was done. Forget the fact that the bonus is likely to be paid, if at all, at a later date and hence subject to currency risk.

The highest domestic salary is also not free from distortion as it may involve substantial performance linked bonus. Additionally, what gets reported is the Cost to Company (CTC), a fuzzy word whose definition varies from one firm to another. The take home salary is sometimes a tiny fraction of the CTC. Not all firms may declare the compensation package or the breakup at the time the press release is circulated, typically the day placements end. Not all firms may want to declare compensation packages. Typically this happens for the PGPX and PGP-PMP programmes where students typically have an average of more than ten years work experience and are placed in middle to senior level positions. At these levels, the salary negotiation is a private matter between the student and the recruiter and can vary considerably from one student to another taking up similar roles in the same firm.

The story does not end with the reporting of highest salary. Soon one B-School is compared to another based on the highest salary offered at the two campuses. Little attention is paid to the fact that there are may be no equivalence of underlying assumptions used for determining the highest salary offered between institutes and even from one batch to the next for the same institute. The highest salary is of course not representative of the entire batch. The fixation with this one figure in turn fuels an aspiration among youngsters to announce to the world they have arrived. What good is it to study in a B-School if you did not get the highest salary on offer? It matters little what is the role on offer, the location concerned or the associated career path. Every job offer can now be safely measured and compared to another based on the salary component. The formal announcement of the highest salary figure and its associated prize winner is the final crowning glory of years of hard work. And in this mad rush to identify the jackpot winner we lose sight of the fact that the campus placement is only the first step in an arduous process of facing challenges and building oneself for a leadership role. It is not the end of the journey, just the beginning.

Strangely, the interest among readers to learn about highest salary figures at B-Schools seems to have an India flavour. I ask the reader to find out from the internet the highest salary package at any elite US B-School last year. You may be surprised at the lack of information. Most schools report median salaries and not highest salaries. The average salary offered has the same deficiencies as the highest salary figure. The only positive is that because of averaging the figure does not ‘belong’ to anyone. It has no claimant since few would want to be called ‘average’ I guess. It is a tolerable nuisance simply because of its impersonal nature.

With the rise in costs of an MBA education, many B-School students are forced to take educational loans for covering their expenses. Hence the salary package post an MBA education is an important determinant of the viability of investing two years of one’s life in an MBA education. To that extent, the media frenzy regarding highest salary packages in the last decade coincides with the hikes in educational fees. My suggestion is to never base a decision to take an educational loan on the highest package but on the average salary figure, that too after making sizeable reductions from the CTC value to arrive at the take home salary. The payback period for an IIM degree is still among the lowest in the world.  Historically there have been little to differentiate among IIMs on average salaries and fees.  Hence there is little justification in looking at the highest salary details coming out of B-Schools for selecting the right school. MBA aspirants should look at the profile of job offers at campuses at their entirety, not just the salary package and definitely not the highest package.

The overriding focus on jobs and salaries and payback periods takes one away from the idea of investing in an education for progress and development, both at an individual and at a societal level. If we need to change this situation we need to stop focussing on the highest salary figure as a first step. At IIM Ahmedabad, we stopped reporting highest salary figures years ago. We report the average salary separately for domestic and international offers, thereby negating the need for currency exchange rates. We dislike IIMA being compared on any salary dimension of an outgoing batch, highest or average or some other measure of central tendency. If compare you must, compare the impact on society by a school’s students and faculty. Unfortunately that is a much difficult proposition than a simple comparison of highest salary of the outgoing batch. “