Pursuing an MBA degree requires a significant investment of time and money, so it’s prudent to consider whether that investment will pay off in the long run.
U.S. News data on MBA compensation provide reason for optimism. Between 2011 and 2016, the average starting salary and bonus among graduates of ranked full-time MBA programs that submitted these data in annual surveys increased 12.9 percent, rising from $83,280.51 to $94,048.24. This is nearly double the rate of inflation in the U.S. during that time: 6.7 percent.
“The last three years have been a golden age for MBA hiring, and rising salary levels are a reflection of the competition across industries to hire talent at the world’s top business schools,” Matt Symonds, co-founder and director of Fortuna Admissions, an MBA admissions coaching firm, said in an email.
“While recruitment in financial services has not returned to the levels seen before the collapse of Lehman Brothers, graduates from Harvard, Stanford and other top 10 schools are securing lucrative positions in hedge funds, venture capital and private equity that include not just eye-watering starting salaries but also very generous guaranteed bonuses.”
Fifty-eight percent of MBA employers polled by the Graduate Management Admission Council planned to increase salaries for the class of 2017, and 19 percent intended to increase salaries faster than inflation.
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Gregg Schoenfeld, director of research at the council, says rising MBA starting salaries could potentially bolster the return on investment of the degree. Higher starting salaries allow students to pay off their student loans and recoup the opportunity cost of pursuing a degree more quickly and easily than they would be able to do with lower salaries, he says.
“Two years ago, we had an alumni study which showed that it took about four years on average to recoup your investment,” he says. “If salaries are rising, that four-year time frame might shrink. So I see it as a positive thing for prospective students to consider, especially in the value and return on investment calculation.”
Experts say the uptick in MBA pay is partly driven by the technology industry‘s increased willingness to hire MBA graduates.
“The tech sector is hiring more MBAs today than it did 10 years ago,” says Jeff McNish, assistant dean of the Career Development Center at the University of Virginia’s Darden School of Business.
At Darden, 17 percent of MBA graduates in the class of 2016 were hired by technology companies compared with 11 percent in the class of 2011, according to school employment reports.
McNish says some investment banks and consulting firms are raising their compensation offers in order to compete with tech firms.
Karen Dowd, assistant dean of career management and corporate engagement for the Simon Business School at the University of Rochester, says she observed a 10 percent increase in the signing bonuses given to its graduates between 2015 and 2016, in part because of generous signing bonuses given by some tech firms.
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“They’re paying bonuses that are higher than financial services or consulting, which have traditionally been the higher paying industries, and I think that’s sending a very strong signal that companies like Amazon are wanting to play in the big leagues,” she says. “They want the best and brightest.”
Damian Zikakis, director of career services with the Ross School of Business at the University of Michigan–Ann Arbor, says the need to replace retiring baby boomers is contributing to an increase in MBA hiring. “The fact that baby boomers are retiring at a pretty rapid pace is leaving many organizations with big talent gaps that they’re trying to fill as quickly as they can.”
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Patrick Plummer, a serial entrepreneur with both an MBA and a doctorate in business administration, says companies’ desire for exponential growth is accelerating MBA hiring and increasing MBA pay.
“Everyone is trying to get exponential growth now,” says the professor of heath care administration at Pennsylvania State University–Harrisburg, an experienced business executive in the health care sector.
Plummer, who has led multiple companies that recruited MBA graduates, says companies are willing to pay a premium for MBA talent when they need an innovative growth strategy. He says many companies face pressure to reduce costs through automation or boost revenue through higher productivity, and that MBA graduates can contribute creative solutions.
“That ability to problem-solve really well is a high-value commodity,” he says.
Judith Hodara, co-founder of Fortuna Admissions and former acting co-director of MBA admissions with the Wharton School at University of Pennsylvania, says that MBA graduates often weigh multiple job offers.
“There are a lot of things they are considering which wasn’t necessarily the case a handful of years ago, when you took pretty much whatever came your way,” she says.
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The MBA Investment: Weigh Starting Pay, Inflation originally appeared on usnews.com
