WSJ: “Smaller Paycheck Awaits M.B.A.s”

Don’t fret, MSBers.

Today’s WSJ article — which quotes MSB prof Brooks Holtom (below) — portrays a dismal ROI picture for the typical MBA … but points out that the economic crunch is not as severe for prestigious school grads (think, MSB).

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Debt-to-compensation ratio

First the numbers.

The WSJ tracked the average comp levels of young MBAs and matched it against their school debt loads.

The conclusion: an average young MBA has carries a school debt roughly equal to 1-years gross compensation … call it about 2 years of after-tax comp.

Note that the gross comp to student debt ratio was about 4-to-1 in 2001 … during the dotcom land rush.

image

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So, what’s going on?

Couple of obvious things are going on …

First, no secret that tuitions have skyrocketed.

Tuition and fees for full-time M.B.A. programs has risen 24% over the past three years.

Second, companies are belt-tightening in light of the weak economy … hiring fewer managers … and downmixing by substituting cheaper undergrads for MBAs.

The result:

  • Median salary for newly hired M.B.A.s was essentially flat between 2008 and 2011, not adjusting for inflation.
  • For graduates with minimal experience — three years or less — median pay in 2012 was down 4.6% from 2007-08.
  • Average pay fell at 62% of the 186 schools that the WSJ surveyed.

Of course, the economy will eventually get better, right?

But, there’s a potentially more significant long-term pressure … the proliferation of MBA degrees

As the WSJ points out:

Formerly, the traditional M.B.A. was mainly the product of a full-time, two-year program.

But beginning in the early 1990s, many schools created part-time and executive M.B.A. programs, with lower-ranked schools often following in the footsteps of academic leaders.

Online degrees also gained in popularity.

As a result, the number of M.B.A. degrees granted has grown faster than the population … or the number of open job slots.

U.S. schools granted a record 126,214 masters degrees in business and administration in the 2010-2011 academic year, a 74% jump from 2000-2001

“An M.B.A. is a club that is now not exclusive,” says Brooks Holtom, a management professor at Georgetown University’s McDonough School of Business.

“You should not assume that this less exclusive club is going to confer the same benefits.”

Said differently, the MBA brand image has been diluted … the market in getting a bit glutted … especially with lower quality MBA diplomas.

How to counter the trend?

Like in a turbulent stock market, the answer is a flight to quality.

A high quality brand MBA (think, Georgetown) will always prevail over over a generic brand.

It’s basic marketing … and basic economics.

So, take heart MSBers …

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2 Responses to “WSJ: “Smaller Paycheck Awaits M.B.A.s””

  1. Chris Says:

    Good to see Prof. Holtom getting some press.

    Too bad it’s in an awful article. The data is absolute garbage. That chart is for all graduate degress – not just MBAs – and they profile a program with a very young full time program in an area of the country with a labor overhang. It might be representative of the MBA market as a whole, but this story gives a false reading on the value of a traditional MBA from a “known school.”

    Seems like just a couple of hours of online research would have helped paint that picture..

  2. $$$: How much is a degree worth? « The Homa Files Says:

    […] * * * * P.S. Yes, I know that this data is a bit contradictory to our prior post “Smaller Paycheck Awaits M.B.A.s” […]

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