MBA Recruits Face Increasing Pressure to Justify Their Pay

MBA Recruits Face Increasing Pressure to Justify Their Pay

Caps fly during graduation ceremonies at the HHL Leipzig Graduate School of Management on Aug. 30, 2014, in Leipzig, Germany, where 80 percent of students in Masters programs of business management are from foreign countries.

SourceJens Schlueter/Getty

Why you should care

MBA programs may need an overhaul. 

Tara Case has no doubt about the value of her MBA, both financially and in terms of building a second career.

The 46-year-old former occupational therapist used her degree from Durham University Business School to switch from clinical practice to a “considerably better” paid executive job. She is now chief executive of Ways to Wellness, a not-for-profit startup providing care to 11,000 patients on behalf of Britain’s National Health Service.

“My title is CEO, but I am also chief operating officer and strategy head,” Case says. “Without my MBA I wouldn’t have anywhere near the insight and confidence to deal with all these roles.”

Employers must balance the cost of paying out higher salaries against the potential for greater value to the business.

For Chris Drinkwater, chairman of Ways to Wellness, who led the appointments committee that chose Case, hiring an MBA meant paying a higher salary than a non-MBA would expect. But the pay was “a lot less” than the amount a CEO from the private sector would demand. It also helped the charity keep within its 250,000 pounds ($350,000) per year operating budget. Case brought valuable experience as a former NHS employee.

“The fact that she had an MBA demonstrated that she was a self-starter, was motivated to develop her career and had the business skills,” Drinkwater says. “We were also fortunate to find someone we could afford, given our funding.”

Business schools emphasize the financial and professional rewards of an MBA to graduates. But the return on investment to employers is also a concern for those hiring MBA graduates, who must balance the cost of paying out higher salaries against the potential for greater value to the business.

Employer confidence is likely to lead to a slight increase in the number of jobs available this year. Of the companies surveyed by business school entrance exam administrator the Graduate Management Admission Council, 72 percent plan to recruit MBA graduates this year, compared with 69 percent last year.

MBA programs will have to fight to fill those jobs with their graduates, as 40 percent of employers surveyed said they expect to hire more people with specialist skills, such as those offered by Master in Management and Master of Finance degrees, compared with 28 percent who said they would hire more for the generalist teaching of an MBA.

Business schools must do more to promote the return on investment of an MBA for companies, according to Scott DeRue, dean of Michigan’s Ross School of Business.

DeRue claims that by his school’s rough calculations, the return on investment for a company from an MBA hire is typically negative until the third year of employment, which puts an onus on the school to explain the rewards of hiring their students. “We have to prove their value to recruiters,” he says.

DeRue worries that big-tech employers will set up their own leadership training companies if business schools do not prove the worth of MBA graduates: “Amazon says, ‘If you can provide students with the right mix of business and data analytics skills, then we will have them.’

“If we do not do that, they will do what they have done to every other industry where they have seen an unmet need and become a competitor.”

The best proof for employers of the return on investment of hiring an MBA graduate is a willingness to return to campus to hire more, according to Andrea Masini, head of the MBA program at HEC Paris. The number of valuable “block” hirers — defined by HEC as companies recruiting more than one MBA graduate from a class — has increased for the past four years and last year accounted for 44 percent of all placements, up from 20 percent in 2014, Masini says.

About 80 percent of HEC’s MBA graduates are hired by large companies, many of which are looking for people with entrepreneurial skills to work on innovative projects. The benefit of such hires cannot be measured in financial terms alone, Masini says.

“These companies can get technical skills from younger students taking specialist master’s degrees,” he adds. “But what they really need is leaders, which are only found in the MBA program.”

Arjun Duggal believes his MBA has a financial value for his employer, Anheuser-Busch InBev, the world’s largest brewer. The Indian-born graduate of IESE Business School joined the company on a 10-week internship last year, during which he created an online dashboard to help the procurement arm track purchases of coasters, beer glasses and other branded materials.

The dashboard helped that team shave 20 percent off purchasing costs last year, according to Duggal.

He thinks his training at IESE enables him to spot opportunities others would not — skills that are hard to measure. Since joining AB InBev full time last June, Duggal has found new ways to present data gathered by the European trade marketing team. “I add value by bringing a fresh pair of eyes to the situation,” he says.

Graduates from IESE’s MBA program are a main source of hires for this team, according to its head, Felipe Blasques.

“We value talent, people eager to grow and develop within the organization, and these MBA profiles have proved to be a good match,” he says.

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By Jonathan Moules

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