The Value of an M.B.A.

Should a firm hire employees with Master Degrees in Business Administration? Absolutely!

Most recruiters in the United States, despite current macroeconomic challenges, continue to hire M.B.A.s at roughly the same rate as they did several years ago, according to a 2009 study by the Graduate Management Admission Council (G.M.A.C.). In fact, companies included in the study continued to grow their own graduate management talent by providing good employees with tuition assistance and opportunities to attend part-time and executive M.B.A. programs.

According to the G.M.A.C. study, recruiters found M.B.A.‘s have the ability to:

• Manage change and human capital;
• Scale and take on higher responsibilities;
• Make decisions; and
• Establish business structure, processes and procedures.

In her article “Why Do Companies Prefer MBAs?” Monster.com’s contributing writer Jennifer deJong suggests that, “MBAs are sought after for their ability to think critically, deal with ambiguity and solve complex problems.”

Clearly, an employee with an M.B.A. offers firms a host of benefits, whether that employee brings the degree to the job, or the company pays for the training.

Of course, earning an M.B.A. rewards the student as well, in terms of increased wages as well as upward mobility in their careers. Again, according to G.M.A.C. data, between 2002 and 2006, the M.B.A. average starting annual salary has been $11,000 more, on average, than the average starting salary of other grad students. The Council says that the median full-time M.B.A. graduate earned $75,000 excluding signing bonus, compared to $50,000 pre-M.B.A.

What we are finding, however, is that the best return on investment for M.B.A. students-and a bargain for recruiters-comes when students enroll in the program immediately or soon after undergraduate commencement. The Simon School’s pioneering Early Leaders© program has tested this theory since 2005, with much anecdotal success. Now, there is research to prove it.

In a fall 2009 issue of the Journal of Education for Business, Ronald Yeaple, former Simon School professor and now distinguished professor of marketing at the Crummer Graduate School of Business, and his colleagues measured the value of an M.B.A. degree for those with and without pre-MBA work experience. The study concluded there is a financial disadvantage to delay entering a full-time M.B.A. program following undergraduate studies.

While students who have less work experience had lower starting salaries, the difference was overcome by the advantage of getting an early start on careers and giving up less in terms of foregone job opportunities. The research shows that those with no work experience actually see a higher gain in salary five years after graduation, compared to those students who worked for one to five years prior to obtaining their M.B.A.

The study found that, by the age of 30, those who attend business school right out of college tend to be paid about the same amount as those who worked one to five years before receiving their M.B.A. M.B.A. students without work experience showed an average 96 percent gain in salaries five years after receiving their M.B.A. compared to 80 percent for those who had one to five years of experience.

The research supports an increasing awareness that dropping out of the workforce at age 28 to attend a two-year graduate business program creates a greater relative opportunity cost, not only in terms of lost salary but also of lost career momentum.

Our Early Leaders strategy has helped Simon School full-time enrollments grow by nearly 50 percent since 2005 (versus an average of less than 30 percent at other top schools). We also have seen significant improvements in incoming student quality and diversity. For example, half of the Early Leaders in a recent Simon M.B.A. class were female, compared to the traditional 30 percent in top full-time M.B.A. programs in the United States.

In contrast to the conventional wisdom, our experience suggests that our Early Leaders perform well in our graduate programs. Our faculty and staff have been pleased with their addition and, based on internal surveys, Early Leaders are at least as happy with our program as their most experienced counterparts.

Recruiters are reacting positively to the Simon School youth movement. Our Early Leaders are getting hired at a 10 percent faster rate than their more experienced counterparts and they have been averaging starting salaries $15,000 less than their more experienced counterparts (our average starting total compensation across all graduating full-time M.B.A. students is just shy of $90,000).

Recruiters have noted several positives associated with the younger students graduating from Simon: a diverse pool of potential employees, technical savvy, openness to new ideas, ability to be integrated effectively into a company’s particular culture and willingness to roll up their sleeves and do whatever it takes to get the job done. We have noted that Early Leaders are more likely to attain C-level (C.E.O., C.F.O., C.O.O., etc.) positions than their older counterparts

We can point to many great examples of Simon School Early Leaders who have done exceptionally well in their professional careers. These include: Joan Lavis ‘83, managing director for mergers and acquisitions with UBS; Jay Benet ‘76, vice chairman and CFO, Travelers; Dag Skattum ‘86, managing partner, TPG Capital LLP in London; Kathy Waller ‘83, vice president and chief of internal audit, Coca-Cola Company; Joseph Doody ‘75, president, North American Delivery, Staples, Inc.; Bob Keegan ‘72 , CEO of Goodyear; Joe Abrams ‘74, co-founder of MySpace; Harindra de Silva ‘84 , head of a $13-billion hedge fund based in Los Angeles; Alexandra Kelly ‘87, CEO of Powerchex in London; Joe Willett ‘75, retired CFO for Merrill Lynch; Donna Matheson’79 , head of Investment Banking IT Strategy for Citigroup; Gino Santini ‘83 , Sr. VP of Strategy for Eli Lilly; and Slobodanka Novakovic ‘01, managing director, LB Capital Ltd. in London.

Now as we see our enrollment numbers, student quality and diversity increase - by gender, ethnicity and, now, age and work experience-we also expect to continue to improve our reputation. Our mission is to attract the best and brightest students with the right attitudes, values and abilities and then prepare them to lead by arming them with a first-class framework to effectively solve business problems.

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