What Newly Minted MBAs Earn

Reprinted from PoetsandQuants.com
As the Class of 2011 continues to spill out of business school, you might wonder which graduates are pulling down the biggest paychecks. The data on this year's class won't be in until the fall, but in what is already an improved job market for MBAs, it's instructive to look at last year for clues.

Highest Paid Base Salary in 2010 Was...

In 2010, the MBA who landed the highest annual base salaryâ€"a whopping $350,000 to startâ€"graduated from the University of Pennsylvania's Wharton School and went into a private equity job with a firm in New York. The starting salary alone was more than three times as much as the median payâ€"$110,000â€"of the MBA's classmates and 14 times the $25,000-a-year job the lowest-paid Wharton MBA assumed.

Not bad in a year when the job market for MBAs improved but was still not vastly better than 2009.

Yet, that highly-paid person was hardly unique. MBAs from at least five U.S. business schoolsâ€"Wharton, Stanford, Chicago, Columbia and Northwesternâ€"reported that the highest base salary received by a Class of 2010 graduate was $300,000 or more. Harvard Business School's top grad last year pulled down a $250,000 base salary, while the highest paid at MIT's Sloan School got $180,000 in base pay.

Rake in the Bucks in Hedge Fund Jobs
At Wharton, the $350,000 baseâ€"earned by at least two graduates with one going into investment managementâ€"was not even a record. In 2009, when the nation was in the midst of its severe recession, one Wharton MBA landed a hedge fund job in London with an unprecidented base salary of $420,000, while another grad from the school gained a $400,000-a-year post with a private equity firm in New York. Back in frothier times such as 2007, a Wharton MBA took a PE job in London with a base pay of $392,000 a year.

Yet, as extraordinary as these sums are, they still fail to capture the total compensation these MBA rock stars got. Once you tote up a signing bonus, a guaranteed year-end bonus, as well as the reimbursement of relocation expenses and tuition, it's possble for a top-flight MBA to exceed half a million dollars a year in compensation for the first year.

"There is always this lure of the $500,000 offer," says Mel Wolfgang, who heads up MBA recruiting in the Americas for Boston Consulting Group. "It's a real draw and there are people who will not even apply to consulting because they won't get one of the three half-a-million-dollar offers that will be extended on their campus that fall. I have yet to meet a person who gets that kind of money, but we know it's out there and it has caused a lot of conversation.

Wharton MBA's Whopping Compensation

When Wharton published the highest total compensation of its graduates, a practice it ended in 2007, the numbers were even more staggering. In 2004, for example, when the highest reported salary of a Wharton MBA was $180,000 for a private equity job, the largest first year total compensation reached $680,000, a number that in all likelihood included a generous sign-on bonus, a year-end bonus, relocation and tuition reimbursement.

This year, for instance, nearly four out of every ten Harvard MBAs who went into private equity received "median other guaranteed compensation" of $155,000 each. Some 9% of Harvard's Class of 2010 took jobs in private equity.

By and large, the highest-starting salaries these days are being paid by private equity firms and hedge funds which recruit far fewer MBAs than the elite consulting firms and investment banking partnerships that buy MBAs in the boatloads. The largest private equity players who are known as the highest paying:

  • TPG Capital
  • and Kohlberg Kravis Roberts (KKR)
Not far behind, according to a recruiter for a top private equity firm:
  • Blackstone,
  • Bain Capital,
  • Carlyle Group,
  • Providence,
  • and Apollo.
Even so, median pay in private equity isn't nearly as large as these big numbers. At Harvard, the median salary for an MBA going into private equity this year was $135,000.

Which MBAs Get the Big Bucks?
The very highest paid MBAs tend to be special cases. To these first MBA jobs, they bring extraordinary work experience and track records that convince firms who want to hire the absolute best and brightest that they are worth the money. In private equity that means hiring grads who already have been in the businessâ€"often as high-performing analysts for the same companies that hire them back. Private equity, moreover, is taking a smaller percentage of the top MBAs. At Harvard, private equity and leveraged buyout firms hired just 9% of this year's class versus 17% of the class in 2008.

The recruiter for a top private equity firm that recruits only at Harvard and Stanford attributes the size of these packages to "the arms race, and generally trying to get the 'best,' which often correlates with these numbers. Many of them (private equity firms) take back their former analysts which means those spots are incredibly limited for anyone who hasn't worked in PE before school."

Often, these recruits already were pulling down big salaries before deciding to go to business school. "Even more shocking is the fact that some of the pre-MBAs were made offers that were easily $500,000 to $600,000 over two years," adds the recruiter. "That's right, the 24-year-olds who were made offers when they were eight months into their two-year analyst programs, just eight months out of college."

Most business schools try to play these numbers down because they don't want to raise unrealistic expectations among applicants and students. After all, the average starting pay for MBAs from most elite schools is a third or less of these outsized gains. The University of Virginia's Darden School and the University of Michigan's Ross School only report median and average compensation numbers so that applicants never know how much the lowest or highest-paid graduates pull down in base salary. Harvard Business School and Dartmouth's Tuck School takes the focus off their highest paid grads by respectively reporting only the 75th percentile and 90th percentile numbers.

And The Lowest Paid Are...

On the other extreme, Wharton reported that the lowest-paid MBA in the Class of 2010 received a base salary of just $25,000 a year for a job in the "media and entertainment" industry in the Midwest. At Stanford, the lowest paid MBA this year accepted a health care job paying $40,000â€"less than the lowest paid non-profit job which paid $50,000 in base salary.

What do you think of the compensation for MBAs? Let me know in the comments section below.

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image courtesy of flickr user, valeblos