Sunday, May 22, 2005

The Maya of B-School Salary

Yesterday, I received this interesting mail from a student, who will be joining the XLRI course this June:

"I will be joining XLRI for 2005-07 batch in PM&IR . I wants to know if is there a basic difference between the salaries for BM students and PM&IR students and if you can kindly tell me the average salaries for PM&IR and the prominent companies coming to the campus for PM&IR."

While such a curiosity can be considered natural, there were two things about the mail which struck me:

One, the subject of the mail was "urgent"... I wondered if he needed this information to take an immediate decision - and how would this statistical information really help in taking a personal decision, and

Two, this was the only query in the mail... no other questions, e.g., about the nature of jobs one can expect, what skills would be required, or what one can expect in the 2 years of coursework... It was almost as if after getting the offer for admission, the only worthwhile issue to consider is the salary one can expect after two years.

...this stimulated some thoughts about this obsession with salary, and salary statistics being being considered the primary criteria for ranking of education in B-Schools. The summary of those reflections:

  • Mostly the salaries quoted by the companies are not the ones which the B-School grad gets in hand. Since late 90s, companies started packaging their salary offers under a mysterious heading of CTC (Cost-to-Company). I consider it "mysterious", because calculation of CTC is actually more an art than a science. Anything can become a part of CTC...

    Many companies add the induction training cost to their CTC (e.g., if part of your training includes a one month "foreign" assignment, it is bumper addition to CTC - besides of course adding the "foreign" glamour to the job offer); some others also add the cost of subsidised lunch in the canteen in the salary package (e.g., you pay Rs 10, while it costs company Rs 150/-, and so, Rs 140/day get added to CTC). Similarly, stock options, market value of chamari accommodation, medical insurance entitlement (e.g., if one is insured for Rs 2lac by the company, that also goes into calculating the entitlements), etc. - or even the market value of infrastructure provided to you (office space, PC, etc.) can be - and sometimes are - part of CTC... A few years back, one MNC bank had given an offer of Rs. 9.0 lacs/annum to one of the students; of which Rs 6.0 lacs was for the rental value of a flat in Malabar Hills, which the bank was providing for her accommodation!!!
    (to be fair, now many companies do share both the CTC and take-home salary, but somehow the CTC occupies a larger mindshare)

  • Why do companies do this? Why not be just straightforward and realistic in quoting the salaries? One reason, of course, must be the economics of recruiting, i.e., apparently the person does "cost" them that much. But a more likely reason is the implicit knowledge that salary is the only (or at least the main) criteria which a young B-school graduate considers in deciding on a job... In fact, as the mail above indicates, it is often the main criteria for even joining the B-School in the first place.

    Moreover, it is very rare that a student has actually studied the company s/he is applying for, for the job - information about the company is normally gathered through pre-placement talks (which most B-school students abhor to attend, and which often also present a pretty white-washed picture of the company), through feedback from their seniors who may have joined those companies, or through their own, or their batchmates', summer training experience in that company. Sometimes, the media reports (including the Best Employer Surveys, Best Place to Work, etc.) - specially, those published during last one years - also play a role.

    But ultimately, the choice is determined by the salary package, since, under the peer-pressure during the "Placement Season", the salary also becomes a - one may say, the only - measure of one's self-worth.

  • The myth of CTC-masquarading-as-high-salary, however, does not end here. It gets further perpetuated by the B-Schools themselves, when they quote salaries for the subsequent B-Schools Ranking Surveys done by different magazines and newspapers. Ostensibly, it is done to create awareness about the institute, and to maintain/build the institute's "brand" so that it can attract better recruiter (who quote higher CTC/salary), and better prospective students (who aspire for higher CTC/salary)... I am not sure if rankings also attract better faculty to join the institute...

    All B-Schools regularly highlight the highest salary offered to students, the average salary, number of "foreign placements", average number of job offers per student, etc. (I am always intrigued about the speed with which the calculations of "average salary" are made, within hours of the finishing of the placement - and weeks before the actual job-offer letters, which give the real break-up of salary, reach the students). In recent years, other statistics have got added to this list - e.g., how quickly the placement got over. Earlier it used to be calculated in number of days, nowadays it is quoted in "hours" - mostly indicating a change in method of calculating these figures!!.

    Needless to mention, no B-School shares information about the "lowest" salary, or the "average salary of the bottom 30%", or about the number of students who did not get placed (even in cases when this happens: a few years back, one of the premier B-Schools, which had a large batch-size - about 300 - and was left with about 25-30 students without a job offer. It gave temporary jobs of "research associates" to all of them, so that it could declare 100% placements in record time!!!)...

  • Lastly, we have the magazines and newspapers, who play a crucial role in sustaining, and feeding, the illusions.

    Why do these publications neglect other data - e.g., lowest salary - in their survey?

    One simple reason is that they are entirely dependent on the B-Schools themselves for any information - and no B-school will share this kind of information (or, at least, will share it accurately). Secondly, to do an accurate survey of hundreds of B-schools requires resources - reporters who can travel to the business schools, talk to recruiter, alumni etc. - which will make the cost of the "story" prohibitive. In fact, often the survey is outsourced to some other agency.

    This often makes the validity of information on which the survey is based, somewhat questionable (a year or two back, in one of the surveys, the publication also wanted to include "alumni rating" as a dimension. Naturally, it asked the B-schools to get survey forms filled up by a sample of their alumni... Well, the rest can be guessed!!!)

    One must also mention that conducting B-School ranking survey, by itself, has emerged as an effective business-model for increasing circulation of any publication (and the huge ad-revenue it generates - virtually, all B-Schools issue ads for these special issues).

    Correspondingly, there are some 6-7 B-School Surveys, conducted each year by different magazines and newspapers - each uses different methodologies, evaluates the B-Schools on different set of criteria, and each claims to be the "most comprehensive and accurate"!!!... Not many people notice this, but even for the same publication, the survey methodology and ranking criteria keep on changing from year to year!!!... it is almost like being ranked on your height one year, and on your weight the next year, making it impossible to compare rankings of a B-school across years, even on the surveys conducted by the same publication.

    ... An indicative example of the 'objectivity' of survey was the one done by a well-known global marketing agency for a certain well-known business magazine in 2003. On page 46 of that magazine was the description of the methodology. It read:

    "It is based on (the agency's) trademarked xyz-Model, and it involves a perceptual survey of (list of dimensions)etc. By not depending on questionable factual information, and focusing exclusively on subjective information, the (magazine's) survey ends up being most objective of them all."!!!! [no, I am not joking or making it up - this is a verbatim quote!]

    Not surprisingly, the ranking of the same B-School on different surveys can vary from being among top 10 to being relegated to something like No. 47...

    [These lacuna would perhaps also explain why this year, the IIMs announced that they will not participate in any survey... Or why Harvard and Wharton had withdrawn from the Business Week survey last year]

    In any case, by and large this "model" works: the implicit collusion among the recruiters, B-Schools and the media helps "manufacturing" a reality which suits all the three players....

    ...and who loses in the process?

    ...the naive prosective B-school aspirant - the kind, who wrote me that mail yesterday...

    ...till s/he joins the system, and becomes a party to creating/ perpetuating the Maya of B-School Salary....

    Other Related Readings:
  • The Real Salaries in B-Schools (archived discussion board)
    http://www.pagalguy.com/cat/archive/index.php/t-2195.html

  • There's many a pay slip... (EcoTimes)
    http://economictimes.indiatimes.com/articleshow/46792795.cms

  • What ails Indian B-school education
    http://us.rediff.com/money/2005/mar/16guest1.htm

  • The $150,000 googly
    http://youthcurry.blogspot.com/2005/03/150000-googly.html

  • Get the best salary for yourself
    http://in.rediff.com/getahead/2005/mar/03gd.htm

  • Disclosure!!! (coolavenue)
    http://www.coolavenues.com/placements/2004/disclosure.php3

  • IIMs shun business school surveys
    http://in.rediff.com/money/2005/mar/31iim.htm

  • IIMs should not shun surveys
    http://in.rediff.com/money/2005/apr/13iim.htm

  • 24 comments:

    Navin said...

    Prof,

    Thanks for taking time to throw ample light on this. CTC is a big trick.

    One company that I knew in their offer letter put

    "BASIC --- Y Rs"
    "PF --- X RS"
    etc...

    The PF actually means X is the amount that the company pays for you.
    So ON HAND EACH MONTH, one gets
    Y - 2X (Y is the basic minus the company PF which doesnt come to my hand each month, then I have to contribute X amount for the same).


    I wish the corporates were lot more candid on this.

    Siddharth Nagpal said...

    Dear Prof.

    This was a really insightful article on the games and tricks, that corpoartes and media play around the much talked about B-school slaraies.

    But, i beleive when one is considering an MBA, one should have a much wider horizon, in one's mind. Though salaries and placements are a major criteria for selecting a course and school, but they should not be the sole criteria.

    A wider perspective and a deeper evaluation of one's career goal is called for among all MBA aspirants.

    I personally believe that during an MBA the quality of people (faculty and fellow students)around are a much more important factor than just salary figures.

    tilotamma said...

    Some prospective grad student wrote me ( when I was one) asking about the 'stipend', how much I am able to save in New Orleans per month etc.

    This would help him pick a school? I believe he had got into 2 other Univs. as well.

    again - nothing about the research, faculty etc. etc. When I pointed that out I got a come on, as if you did not think of the same things before joining your PhD........

    M a D a N said...

    A comprehensive indepth view of the salary war. Materialism rules in today's generation. Eat the cake, donot worry about the recepie is the order of the day.

    Anurag said...

    Prof Shukla:

    Nice to see someone demistifying the B-school salaries. We need more such efforts to bring this info to the mainstream, which otherwise is only led by stupid media's rupee-converted-dollar-salaries hype.

    Samiullah said...

    Hello there!
    This luring stuff of B-Schools and Companies both should be put to an end. It is another form of falsifying the salary info.
    The fresh grads with stars in their eyes and butterflies in their stomach must start pondering over this. Lets hope some of us device a B-model to put a dot (.) to this kind of mysterious attractive salary illusions.
    Thx!

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    Ciggy said...

    And not to forget.. when I was doing my MBA even as late as after the Summer Internships, the now Year 2 students, made their presentations on the experiences, (intended to give critical inputs necessary to make a career decision):

    "Wow this company gave me STD phone"
    "Wow this company gave me a desk and a phone and did not monitor personal calls"
    "This company is 'lala' because, you cannot fudge travel claim"
    "This company gives air-fare for travel"

    I sure was LOL on such immaturish decision making process;-)

    Vijay N said...

    Hello Sir,
    Finally an authentic word on Bschool salaries. I have a question to you. How are salaries of Bschool alumni say 3-5 years after completing the mba. I heard career growth (read income) is great after one or two years of post mba work ex. To tell you my situation, I will be completing my engineering this academic year and I already have a job at hand which pays me close to the average salary quoted by most B-schools. So I am right now in a situation wherein I have to decide if the mba is going to be profitable for me in the long run. Any information in this regard would help.

    Anonymous said...

    It is indeed quite a rip off. Besides I wonder the wisdom behind divulging people's salaries. This in any company happens to be of confidential nature. Besides, what does it promote? A feeling of dejection for most, unrealistic expectations/pressures on the students (So a fresher earning 5 lacs can be considered a failure) etc.
    Recently they announced a package of 88 odd lacs to a guy in Bangalore. Great for him. So what are the others supposed to do?

    Biswajit Dasgupta said...

    It is indeed quite a rip off. Besides I wonder the wisdom behind divulging people's salaries. This in any company happens to be of confidential nature. Besides, what does it promote? A feeling of dejection for most, unrealistic expectations/pressures on the students (So a fresher earning 5 lacs can be considered a failure) etc.
    Recently they announced a package of 88 odd lacs to a guy in Bangalore. Great for him. So what are the others supposed to do?

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