I used to sit on the 21st floor. Now I am retired

Monday, March 13, 2006

Are MBA salaries worth it?

Amit Varma opines that the hue and cry about MBA salaries is misplaced. Can't agree with him more. Neither the writers nor most of the readers understand economics. Hence, they approach the issue with envy.

Every year, the same article is regurgitated by the newspapers. Most of the articles are false (with overhyped salaries, especially average salaries) anyway. I remember having read that my salary was 1.5 times what it was, when I got placed. Some of the envy is misplaced*.

Having said that, people have the right to question whether MBAs really are worth that much. They shouldn't whine, but they can definitely question.

One of my MBA friends was telling me the other day that his company (one of the largest MNCs in the world) doesn't even let him know how he has 'added value'. He's getting paid quite a lot. However, he is not satisfied. Apparently, for one year, he hasn't had an appraisal (but has got a raise). Obviously, that leads to the question of how much are MBAs worth. By an MBA himself.

By the way, for a really interesting debate (with some researched facts and piquant opinions), check this out. I was looking for an example of a 'value-adder**' MBA to put on my blog.... then I saw the name of the 1975 HBS alumni, Dubya. I think this one is a better example of a MBA adding value:

"1. Fred Smith, chairman and founder, Federal Express. Smith is a legend among MBAs because he developed the hub-and-spoke delivery concept in a business case at Harvard Business School. He got a C on the paper. He raised the most venture capital ever assembled to-date in the early 1970s -- to start an overnight competitor to the U.S. Postal Service and United Parcel Service. The company now has more" than 200,000 employees and revenues of $21 billion:

And yes, he got a C.

*Though I do agree that I (and most of other MBAs) get paid well.
** I think a parody of Black Adder is on the works.


Blogger Grandebelf said...

well is an understatement, and dont put you and other MBAs in the same bracket too:)

Tuesday, March 14, 2006 3:47:00 AM

Blogger Mr. D said...

hey, there's something wrong with the look and feel of your page..

Tuesday, March 14, 2006 4:20:00 AM

Blogger Falstaff said...

Not surprisingly, I couldn't agree more.

What I find most amusing about these articles is the way they make it sound like these salaries are pure windfall - as though just about anyone could have made those salaries if they'd just taken the trouble to sign up for an MBA at an IIM. Thus conveniently ignoring what it takes to get to the point where you can earn that kind of money. Let's face it: the high salaries MBAs earn are essentially scarcity rent, and the reason they continue to earn them is because entry barriers are so exceedingly high. If that weren't true, why wouldn't competition among managers on the job market have ensured that any value created by MBAs would have been expropriated by the firm and not passed on to the manager?

Tuesday, March 14, 2006 4:55:00 AM

Blogger dhoomketu said...

Dibyo: Think it's an ie problem. Mozilla seems fine.

Falstaff: Yes, entry barriers are high, though I am wondering how much of it is the amount of hardwork/ something intrinsic within those individuals who undertake the journey, and how much is due to scarcity of places which offer a MBA. My sense is that in India the second factor does play a role (hence the difference between a MBA-Non-MBA salary is higher). In US , I read that an average salary increases by 1.5 times before and after a MBA. In India, for my batch the ratio was more like 2-2.5 times.

Tuesday, March 14, 2006 5:45:00 AM

Blogger Grandebelf said...

Apt(e)speak On the performance of students at the final placements, the IIM-B director said, "There is no competition between IIM-Ahmedabad and Bangalore. It is just media hype. Sometimes IIM-A students get higher offers and sometimes our students get them. It is all linked to the general economic conditions. The salaries are higher this year because the Indian economy is doing well and the market is expanding."

This to me is the most direct and honest explanation.

Thursday, March 16, 2006 1:13:00 AM

Blogger Mr. D said...

That before-after 'index' (as belfie pointed out) is also a factor of the state of the economy at that point also. For instance, the Indian economy is growing faster that the American one, and hence the need for people who can manage growth. I'm not so sure it's only a quantity thing, there ARE a lot of MBA institutes in India. I feel it's a quality ('percieved quality' at times) multiplied by quantity thing.

And yes, it might be an IE thing.. will check from home and see.

Thursday, March 16, 2006 1:36:00 AM


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