MBA salaries are on the increase in almost every country in the world. As demand for MBAs surges in consulting and financial services, recruiters must compete on salary to secure their preferred candidates.
Having just delivered a key note speech at the QS TopMBA Careers Conference at the Cafe Royal in October, I was struck by acceptance amongst business school careers officers, that the headlong rush towards consulting and banking careers is the inevitable outcome of, and investment of, up to twenty-four months in time and up to ˘G50,000 in money, by young professionals taking an MBA course.
Certainly the data from a survey of 5,800 MBA applicants conducted by TopMBA suggests that this is a global phenomenon, not restricted to the UK market. As the table below demonstrates, 62% of MBA applicants worldwide will seek a career in consulting, compared to 57% in the UK. A similar percentage seek a career in financial services - 47% worldwide and 51% in the UK.
In the current MBA bull market there is no shortage of jobs in the professional service sector. Tanvir Haque, Head of Graduate Recruitment at Standard Chartered Bank, reports an increase from 5 MBA hires in 2005 to 17 this year and a projected 70 MBA hires in 2007. He observes, ˇ§We are looking to build up our leadership pipeline within our middle management levels. MBAs are ideal because they offer the diversity and talent pool we seek for our key markets in Asia, Africa and Middle East.ˇ¨ Such heady growth in hiring numbers is not uncommon at present resulting in intense competition for talent.
At the conference, Lucy Gregory of Morgan Stanley pointed out that many professional service companies encourage their graduate analysts to leave after two or three years to take an MBA, enabling them to return as MBA Associates at a higher salary band. Strategy consulting firms like McKinsey, BCG and Bain adopt a similar policy.
Change of Direction
So is the MBA recycling a talent pool from these professional service companies just to feed them back into the same industries? The QS TopMBA.com Applicants Survey 2006 suggests not. Only 17% of respondents were working in financial services before their MBA and only 11% were working in consulting. 18% of respondents were working in industry and engineering, whilst 17% were working in IT. For the majority of people (51% of respondents), an MBA is seen as a route to change the industry sector they are working in.
Candidates are attracted by the high salaries paid in the service sectors. The average first year compensation for an MBA entering banking in 2006, was US$146,000, of which US$91,000 was the starting salary and US$55,000 was the end-of-year bonus. This compares to average compensation in industry of US$105,000 (of which US$89,000 was salary).
Attracting MBA talent
As a result of these differentials, industrial and engineering employers are currently struggling to attract MBA talent. Eric Romano is an MBA recruiter at Dupont Chemicals who seeks MBAs internationally. ˇ§The recruiting process is often a random dance. A person will interview with us and be very keen, but then go to a consulting firm - with very different outcomes.ˇ¨
But MBA applicants are not driven just by salaries and bonuses on graduation. They also take an MBA to achieve career progression, to learn new skills and to build a professional network. Amongst UK applicants, FMCG, Retail and Media are the destination sector for 29% of respondents, whilst Government and non-profit is the destination for 22% of respondents (the 4 th most popular industry choice, with the lowest average compensation). The technology sector appeals to only 19% of UK respondents, despite paying almost as much as the consulting sector. Within the 'other' category, roughly 10% of applicants expect to start their own business straight after their MBA, despite having to pay back school fees and suffer the uncertainty of possibly not earning a salary in the start-up phase.
Looking at the longer-term aspirations of MBAs reveals that the rush into consulting and banking is, for many, just a means to an end. Actually, what most MBAs want to do is run their own business (58%) or be a director of a major company. Consulting and banking are seen as stepping stones to achieve these objectives. The fact that they are well paid is the 'icing on the cake'.
Written by: Nunzio Quacquarelli, QS Top MBA Career Guide
