What MBA Graduates Now Earn
Maria |
August 18, 2022

Let’s look at the statistics that back up Stanford University‘s amazingly positive employment report, which was also the first business school to publish its 2022 MBA employment report.

John, Maria, and Caroline, our hosts from Business Casual, will go over the reasons why the figures are so remarkable; the different factors why the school consistently ranks first in terms of salary records for the 7th consecutive year; and a breakdown of the different industries that students go on to join after graduation.

Episode Transcript

[00:00:07.450] – John

Welcome to Business Casual. The weekly podcast of Poets and Quants. I’m John Byrne, the editor of PNQ, and I’m here with my co host, Maria Wich Vila, the founder of Applicant Lab and Caroline Diarte Edwards, the co founder of Fortuna Admissions and the former admissions director managing, director at INSEAD. This past week, the first of what will be many MBA employment reports came out for the class of 2022. Stanford was first out of the gate, and as you might expect, it’s an incredibly positive report. Within three months of graduation, 91% of the class had accepted a job offer, up from 85% the year before. And the numbers were pretty impressive. The mean and median starting salaries for the class were 161. 831 and 158, 400 respectively, was the 7th consecutive year for increases in both meeting starting salaries and overall total compensation was up a little bit, not a lot. And when we say overall compensation, we mean that includes salary sign on bonus and expected performance bonus. At the end of the first year, the total is 23184 nine $231,849, which is a pretty nice payday for someone freshly minted out of a business school program.

 

[00:01:44.090] – John

Typically, Stanford brings in the highest numbers. Yeah, there are others that are way up there, but Stanford, I think, given its location, the Bay Area and the allure of that degree, tend to make the most money right out of business pool. And that doesn’t even include things like stock. And we know that 41% of the graduating class at Stanford gets either stock options or restricted stock. That can be 30% to 70% of the actual salary that they earn. Caroline, these are great numbers, aren’t they?

 

[00:02:21.760] – Caroline

They are very impressive. Yes. It’s amazing that Stanford seems to always top those salary rankings. Right. Perhaps it’s partly, as you say, being in the Bay Area, and a huge chunk of those graduates do stay in the Bay Area. Right. And with the high cost of living there, they are commanding extremely high salaries. And of course, they have the pick of recruiting opportunities. And I think also the fact that it’s such a small class relative to some of the other top schools means that there is even more opportunity for them to cherry pick opportunities perhaps, than at some other schools, given that recruiters coming to campus have so few students to choose from. Right. And some recruiters even have trouble stands attracting candidates to interview because a big chunk, and I note this in the article so many of them are starting their own companies and pursuing perhaps nontraditional post   MBA routes as well. It’s very tough for recruiters to attract candidates from Stanford, and I think they really have to pay absolute top dollar to secure them.

 

[00:03:39.170] – John

Maria, the other thing that’s always interesting to me about the report is that Stanford always puts more people into financial services than even tech, even though we think that Stanford being in the epicenter of silicon Valley would naturally supply the tech business with most of the MBAs out there. Tech almost never is number one as a choice. And that has to do with money, doesn’t it?

 

[00:04:10.470] – Maria

Yeah, I’m sure that money certainly does not hurt the decision making process. But I would say that if I had to guess, I would think that, yes, a lot of Stanford grads go into finance, but I would suspect that a lot of them are tech adjacent in terms of maybe a lot of schools have 30% of their class going into finance. But I would suspect that at Stanford it’s more geared towards and venture capital, private equity, maybe early stage private equity or tech focused private equity, those sort of more techy focused investing opportunities. So I think not all finance jobs are created equal. So I would suspect that, yes, it’s a high percentage of people going into finance, but I would suspect that within that percentage there is an uncommonly high percentage of people doing tech focused finance.

 

[00:05:01.770] – John

Yeah, and you’re absolutely right. 15% of the class went into private equity, 11% went into venture capital. Those are higher numbers than at Harvard, typically at Wharton, at Columbia, the latter two known for their finance departments. So even though they’re going into the industry of finance, they’re very much involved in Silicon Valley technology. And such one thing that Stanford does not do is indicate who their major employers are. I know that from the past because consulting, we love Stanford MBAs, but consulting tends to have problems recruiting Stanford MBAs. Yes, it’s the third most popular field or industry choice of Stanford MBAs, but it trails tech and financial services by quite a bit. Why do you think, Maria, that Stanford MBAs tend to be hard to recruit into consulting? Is it the atmosphere?

 

[00:06:05.770] – Maria

I think consulting firms are having issues across many schools because I think that the tech companies in particular have started matching a lot of those compensation opportunities while simultaneously providing a much better lifestyle, if that’s what you want. So I personally have had clients who originally thought they wanted to do consulting when they went into business school and now they’re at Google, Microsoft, Amazon, because they’re making tremendous amounts of money for the age that they are. And yet you’re not hearing the nightmare stories about the 80 hours work weeks and all that craziness that you hear with consulting. So why would I put myself through the consulting ringer if I could have similar compensation if I go to a tech company?

 

[00:06:53.230] – John

Yeah, and the other thing is you are soaking up in Silicon Valley this whole culture and atmosphere that people are on the verge of creating something that’s exciting and new and different. And these are very innovative companies doing cool things. And even though we’ve become less enamored of the tech field, given all the bad publicity regarding privacy and other issues at some of the prominent firms, I think tech still holds a great allure for many MBAs, particularly those in the Valley. He’s just surrounded by these exciting companies. The other interesting thing about Stanford that is very different from most other business schools is the percentage of the class that typically starts their own company. It’s 18%. More commonly you’ll find 5% of an MBA class going into entrepreneurship, not 18%. I wonder at INSEAD what it would be. Caroline, do you know?

 

[00:07:58.600] – Caroline

I don’t know the latest number. I know it has gone up a lot over the past few years. And when you look at the actual total number of people graduating from INSEAD, which is around 1000 per year compared to Stanford, then it is a substantial number in total. But it’s not such a large percentage as it is at Stanford. And I agree that it’s a very impressive percentage. Stanford is known for that, right? A lot of people are coming to the Bay Area because they have that drive to start their own company. It’s known as such a great ecosystem, right, of entrepreneurs, of opportunities to get access to investment, to funding. So it’s really the Mecca, I think, for people who are attracted to that. My husband talks about it in terms of it’s like being in Florence during the Renaissance, right? It’s like the place to be if you want to be at the forefront of innovation in the 21st century. He’s very good at giving his spiel as a venture capitalist in Silicon Valley. But it is true to a certain extent, right? You have got this extraordinary ecosystem in Silicon Valley that other places have tried to replicate and no one has quite done it yet to the same extent.

 

[00:09:17.950] – Caroline

And part of that is largely thanks course to Stanford University. And so that has huge attraction for people who just have that entrepreneurial bug and want to get started with something straight away. But I would say also at in CED in the longer term, the percentage of people who start companies are involved in entrepreneurship is huge. It’s like 40, 50%. So it is a very entrepreneurial community, but not as many people starting company straight out of business school. And I think part of that may be access to funding and perhaps also the debts that they’ve taken on during the MBA program, which of course they’re looking to pay back. And many people do that by taking on a corporate position, getting one of those big salaries, the sign on bonus, et cetera, to pay off their student loan before then starting their own company.

 

[00:10:12.270] – Maria

And if I could just jump in, I think, as you guys were talking about entrepreneurship, that also made me think about maybe one of the other reasons why consulting does sort of take a back seat compared to Tech at a place like Stanford is that, to be honest, I feel that consulting gives a lot of valuable skills. But if you eventually want to become an entrepreneur working for a tech company is probably going to be a much more relevant experience in terms of if you get experience building a product. If you get experience launching a product. If you get experience doing customer research and usability research. And all that stuff that you might get at a tech company. That stuff to me. Very directly translates to being useful should you want to start your own tech company in the future. Versus management consulting. Which you’re going to get lots of valuable stuff from that too. But maybe your clients are large corporations that are doing grain or cat food or parts for trucks. And so you’re still gaining value. But you’re going to gain valuable skills wherever you go. But if you know that you want to become an entrepreneur.

 

[00:11:12.280] – Maria

Because we know that Stanford does attract people who eventually want to become entrepreneurs. I wonder if the pitch is. Well. If you come work for me here at Microsoft. You’re going to learn all this stuff. That when you eventually become your own entrepreneur in the software space or whatever it is. It’ll be more valuable to you. And maybe that helps explain it too.

 

[00:11:29.320] – John

That makes total sense to me, absolutely. The other thing is, a lot of people want to go into early stage companies if they don’t want to start up their own. And Stanford is in the perfect place to land the job with an early stage company, get stock and move ahead. And that’s another option that draws people away from consulting, which, after all, is probably the single biggest recruiter overall of MBAs in the world. The other interesting thing in the stats, and this is worth mentioning, is at a time, let’s say the last five or six years, when you have an increasing chorus of people who cast doubt on the value of the MBA, it’s interesting to look at the salary trends. And yes, this is Stanford, but in many ways, Stanford is reflective of other schools. Just the numbers may not be as big, but the trend is there. And you go back six years and the total comp earned by a graduate MBA, stanford was about 180. Now it’s over $231, basically 232. It’s more than $50,000 more than it was six years ago in 2016. And that tells you how great the demand is for the MBA, whether it be at Stanford or other schools, because you would see a similar trendline in other MBA programs.

 

[00:12:56.050] – John

What do you make of this? Are you too jealous that today’s MBAs are making this kind of money straight out of school? $232,000 in total comp in the first year?

 

[00:13:06.100] – Caroline

But of course, Maria and I are making multiples of that now, so.

 

[00:13:14.090] – Maria

Living the dream.

 

[00:13:16.970] – Caroline

Well, I think it’s great for them, right? And as you say, employers are putting the money where the mouth is, right? And we occasionally hear sort of famous people like Elon Musk and so on, dismissing the value of the MBA, but the numbers are very hard to argue with. Right. The demand is there and it continues to grow. And I agree with you, that trend will be reflected in many other schools as well. It will be interesting to see what other numbers we see, but I suspect it’s in the same direction, so good for them, right? It’s a great start to the post MBA career, and a lot of them are, as we said, they’ve invested a huge amount in their degree. It’s very expensive to go to school like Stanford GSB and forgo salary for two years and Carolyn living expenses. So it’s great to see that that investment is paid off.

 

[00:14:16.290] – John

Maria any envy?

 

[00:14:18.350] – Maria

I mean, maybe a little, but I don’t know. I also wouldn’t want to be 28 again. It all kind of balances out. No, look, I just think salaries tend to go up because of a thing called inflation. And yes, the salaries are rising faster than they do at general inflation. But I also think that there are demographic shifts happening, and I think there are economic shifts happening. Technology and startups are definitely far more viable ways to make a lot of money. Now, in terms the sheer number of opportunities to make a significant amount of money in tech versus three years ago when Caroline and I graduated. Many years ago when Caroline and I graduated. So it’s great. It’s great that there are more opportunities out there and that these folks are going after them. I also think that the increased salaries are a function of increased salaries going in. Right. I work with people who are getting into places like Stanford, and their premier comp is 100 and 5182 hundred. In some cases. Not all, obviously, but in some cases these are people who are already making a lot of money. And so if an employer wants them, they have to, like Caroline said, they got to put their money where their mouth is and pony up the money if they want that talent.

 

[00:15:42.940] – John

Yeah, totally. Now, I mentioned earlier this issue of stock based compensation, which is not reported by Stanford or any school for that matter. Stanford does reveal that 41% of the class landed stock based compensation. But of course, it’s very hard to put a value on equity awards. So we went to a firm called Relish Careers that gathers from MBA grads compensation data, among other things. And here’s what they found. They found that basically a little over 12% of all the MBAs in their database, and this would include all the schools, elite schools, second tier schools, third tier schools, about 12% of the MBAs actually get some stock based compensation, either options or restricted stock. And that 12% is worth over $30,000 a year to those who get it. In fact, the average is $32,947, which is pretty significant. But what’s interesting about it is that the people who did get stock based compensation tended to get bigger increases in other pay as well, so that the difference was significantly more per year to them than just the $33,000 stock. I’m thinking that while those entry salaries in tech tend to be lower than they are in finance or in consulting, the truth is that the stock, later on, the increases in pay, by virtue of salary increases, bonuses tend to be higher.

 

[00:17:30.210] – John

What do you make of this, Maria?

 

[00:17:32.550] – Maria

Yeah, first of all, I just want to say I think it’s smart that they do not include stock compensation in these reports because at least with a salary, a dollar is a dollar. It’s an apples to apples comparison with stock. It wouldn’t even be like apples to oranges. It would be, I don’t know, apples to zebras. It would be like so right. Because you have no idea if that stock is ever going to be worth anything. And you have no idea. Like maybe one person got 10% of a company and someone else got zero zero 1% of a company. But if it’s zero zero 1% of Amazon, isn’t that worth more than 100% of stock at a company that never goes anywhere? So it becomes like this huge headache to try to even put a dollar value on it. Yeah, I think look, in terms of how that makes a bigger delta overall, I think if a company is successful and growing, they can afford to pay people more base salaries and they can afford to give more stock. So I’m not surprised to hear this. I think if you are joining a company, I think it’s a great way to align incentives because if you are joining a company that has a significant stock percentage, then it’s not just about, okay, how am I going to maximize my own personal wealth over the course of the two to three years that I’m here?

 

[00:18:46.820] – Maria

But it’s  also giving me an incentive to maximize the long term value of the overall corporation. So I actually think it’s a smart thing for employers to do.

 

[00:18:56.440] – John

Yes. And we got onto this topic because a Google product manager with an MBA from Berkeley, Haas, brought it to our attention and said, look at Google. My salary, well, 30% to 70% of my compensation is in stock at schools like Berkeley or Stanford in particular. And incidentally, at Berkeley, more than 41% of the MBA’s get stock. According to them, it’s like 43%. For some reason even higher than Stanford, maybe because fewer actually start their own companies. These schools are vastly underreporting their compensation data for their graduates. But I totally agree with Marie. It’s almost impossible to value stock because it’s all dependent on when it vests, when you actually cash it in, and sometimes it can be worth little to nothing. Now, the other interesting data that came out of relish is who is giving stock out to MBA’s? Caroline, can you guess who’s at the top of that list. It’s a quiz.

 

[00:20:07.030] – Maria

Yeah.

 

[00:20:07.620] – Caroline

I would have thought it was the Internet. Google? That’s my best guess.

 

[00:20:12.010] – John

Okay, well, that’s not far from the truth because Amazon is number one. Amazon Accenture, this is really weird, is number two. Google is three. Microsoft is four. Wayfare, which has had a big appetite for MBAs, but is really in the ecommerce game, is next with Adobe Intelligentech, Oracle and Airbnb, all players and awarding their MBA stock, which is pretty fascinating. I mean, overall, you just got to say, look, the pay for MBAs has never been higher. It’s at record levels. Yes, some of this is inflation, but ask any person who works for the man who gets those two and a half percent pay increases every year, looking at these numbers, how satisfied they are with their pay increases in light of inflation, and I don’t think they’ll be all too that happy. So there you have it. And of course, Caroline and Maria aren’t envious at all, really, because they make so much money doing what they do that this is just a drop in the bucket for them, right?

 

[00:21:25.190] – Caroline

Yes. We’ll just leave it at that.

 

[00:21:30.330] – Maria

This conversation reminded me of a conversation I had when I was doing my summer internship in business school. I was at Discovery Networks, and one of the people I was working with was himself, an HBS grad, and he said we were talking about his decision to go work in media, which is a much lower paying industry on average than typical than the average MBA. And he was saying, look, I think the way he thinks about it is that all MBA graduates make roughly the same amount of money for those first, say, 30 hours a week of work, and then it goes up sort of exponentially. And so his whole thing was like he’s about maximizing the amount of money he makes per hour’s work, not total amount of money he makes, period. And I think that’s an interesting way that if any young folks are thinking about it today, part of it could be looking at total compensation and saying, wow, if I go into investment banking, I’m going to be making so much money. But maybe if you divide out based on the number of hours you’re working. This is, again, going back to the topic of why tech jobs are so appealing.

 

[00:22:34.680] – Maria

I think this is why the tech jobs are becoming more and more appealing, because you might make less total compensation, but in terms of that per hour worked, I don’t know, something to think about, depending on what you value in life and what you want to do with it.

 

[00:22:47.830] – John

That’s really true. Absolutely. All right. Very good point. Maria. This is John Byrne with Poets and Quants. You’ve been listening to Business Casual. We hope that you are as eager as we are to see you on your MBA journey. Round one applications are due right around the corner. And we’re talking about those career outcomes that make the MBA degree so valuable.

 

What MBA Graduates Now Earn
Maria |
August 18, 2022

Maria

New around here? I’m an HBS graduate and a proud member (and former Board Member) of AIGAC. I considered opening a high-end boutique admissions consulting firm, but I wanted to make high-quality admissions advice accessible to all, so I “scaled myself” by creating ApplicantLab. ApplicantLab provides the SAME advice as high-end consultants at a much more affordable price. Read our rave reviews on GMATClub, and check out our free trial (no credit card required) today!