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)

  • There's many a pay slip... (EcoTimes)

  • What ails Indian B-school education

  • The $150,000 googly

  • Get the best salary for yourself

  • Disclosure!!! (coolavenue)

  • IIMs shun business school surveys

  • IIMs should not shun surveys

  • Saturday, May 21, 2005

    Community- & Eco-Money: Alternative Currency Systems

    Mostly we take money and the currency system as a "given"... almost as if there is only one way in which money can circulate, be used... and affect the lives of people.

    However, as one of the earlier posting (The Eleventh Round - A Fable) pointed out, the current monetary system, by its very nature, tends to promote inequality and social disharmony. Moreover, the global currency speculations of the FX markets tend to make local economies dependent on FX operators, and promote instability.

    There are, however, many alternative currency systems in the world (e.g., Times Dollars, LETS (Local Exchange Trading System), Calgary Dollar, etc.), which are localised, promote stability and cooperation, and provide a more sustainable alternative. According to Bernard Lietaer there are more than 4,000 of such complementary currencies in operation around the globe.

    Here is one example (given the facts: that 66% of human beings who ever reached the the age of 65 are alive today, and $trilions of unfunded pension liabilities and rising healthcare costs, such alternatives make immense sense):

    Japanese "Relationship Tickets" and "Eco-Money"
    Thursday, February 5, 2004

    Two types of local currencies have been created in Japan to promote community, environmental conservation and health care. Hureai Kippu, or "Caring Relationship Tickets", were created in 1995 by the Japanese Welfare Institute so that people could earn credits helping seniors in their community. Sometimes seniors help each other and earn the credits, other times family members in other communities earn credits and transfer them to their parents who live elsewhere. A surprising part of the project has been that the elderly tend to prefer the services provided by people paid in Hureai Kippu over those paid in yen.

    This may be due to the personal connection developed between users of the currency.

    The second form of Japanese currency, called "Eco-Money", is a community currency much like Calgary Dollars, used to connect neighbours in obtaining the goods and services they need.

    In the town of Kuriyama, Hokkaido, for instance, second grader Ami Hasegawa paid 1,000 kurins to get her favorite toy fixed. The kurin is the local currency that was named after the township. Ami's father earned 3,000 kurins for fixing the handrail of a staircase in a neighbor's house. And her mother paid 1,000 kurins to an elderly man who wrote addresses for her on postcards in beautiful handwriting.

    In spring 1999 Kusatsu in Shiga Prefecture became the first city in Japan to use eco-money, calling it the Ohmi, which is what the prefecture was called in the old days. Several other cities followed suit with currencies of their own, with Matsue, Shimane Prefecture, calling it the dagger (borrowed from the local dialect) and Takaoka in Toyama Prefecture.

    Some 30 more communities across Japan are introducing such currencies. Some municipalities plan to use the money to plant trees and reduce garbage. Eco-Money Network Secretary General Masanari Nakayama stated, "Eco-money is a way of getting neighbors to help each other out and to deepen their ties to the community."


    Monday, May 16, 2005

    SAP ("Structural Adjustment Program") - the Un(?)intended Consequences

    One of the comments on the last posting on Argentina's Museum of Debt was: "The policy makers, economists all the big shots who decide on the behalf of their country must have been taking all this into account. If yes, then how do they accept to bind themselves to these "pseudo" chains of slavery?"

    While, often the economic decisions do get influenced by the political "flavour of the day" ideology, there are also often the un(?)intended consequences of debt which are neglected by the policy-makers of the country...

    This post is about these un(?)intended consequences of the IMF/WB loan/debt (one may even call it the Faustian Contract with Mephistopheles)...

    Since there are no free lunches in the world - and so, the debt/loan from IMF/World Bank comes with certain strings attached to it - normally called "Structural Adjustment Program" (SAP) or "Country Assistance Program". These conditions call for "reforms", requires "austerity measures", suggests that the country should "open" the economy, allow "free trade", and become part of the "global economy".(now, who can argue against something which is dubbed as a "reform", "opening up", "free", "becoming part of gloabal economy", etc. - such is the power of words!!!).

    The world, however, being more non-linear than what economists suggest/know, there are also the Un(?)intended Consequences of these conditions for getting the loan - leading to devastation of countries and economies.

    Some examples of the conditions, their intentions, and their consequences:

    This is aimed to bring much needed capital into the country by making the business environment conducive for MNCs (many of which have a turnover larger than the countries GDP). Once the economy opens up, MNCs can easily purchase or start enterprises. To attract MNCs - and FDIs - countries also compete by offering tax breaks, low wages, free trade zones, etc. Often governments also offer implicit pledges not to enforce labor and environmental laws. Relaxation of tarrifs allows free-flow of foreign - often better quality - goods to domestic markets, and makes the luxury items within the reach of larger proportion of populace
    Un(?)intended Consequences:

  • Control of entire sectors of economy shifts to foreign MNCs, whose sole reason for investing in a country is to make more profits
  • Makes it harder for domestic producers to compete against better-equipped and richer foreign suppliers
  • Leads to closure of businesses and layoffs, increasing the unemployment

    Reducing expenditures on health, education, water, farm subsidies, etc., will free up money for debt-repayment
    Un(?)intended Consequences:
  • Increased school fees force parents to pull children - usually girls - from school. Literacy rates go down.
  • Poorly-educated generation not equipped for skilled jobs
  • Higher fees for medical service mean less treatment, more suffering, needless deaths.
  • Increased cost of basic items which are needed for subsistance.

    Reducing budget expense by trimming payroll and programs will free-up capital for debt servicing and for more productive purposes
    Un(?)intended Consequences:
  • Fewer government employees means less capacity to monitor businesses' adherence to labor, environmental, and financial regulations
  • Massive layoffs in countries where government is often the largest employer, leading to rising unemployment
  • Makes people desperate to work at any wage, and under any conditions

    This is based on the Comparative Advantage hypothesis - i.e., do what you can do best, and access better quality of goods/services from those countries who have a natural advantage in those. For instance, if the country has that natural advantage, it should give incentives for farmers to produce cash crops (coffee, cotton, etc.) for more lucrative foreign markets; encourage manufacturing to focus on simple assembly (often clothing) for exports; encourage extraction of valuable mineral resources, etc. This will help the country to earn foreign currency, and ease in repaying the debt.
    Un(?)intended Consequences:
  • Law of supply and demand pushes down price of commodities as more countries produce more of the same thing (as happened with Coffee, Sugar, etc.), resulting in driving down the earnings of local producers - often below their cost of production.
  • Local competition gets eliminated for foreign MNCs
  • Country becomes more and more dependent on imported food, goods and services.

    ....To be fair, the conditions of IMF/WB are not all that bad for everyone. They do help the educated middle-income groups in the developing countries to live a better - consumerist, insulated - life-style, and they - the bankers, business men, MBAs... - become the local champions for these policies...

  • Sunday, May 01, 2005

    Argentina's "Museum of Foreign Debt"

    Every nation that has been invaded, occupied and devastated, has created some sort of monument/museum to preserve the memory of that invasion and occupation, for the posterity.

    In the present days, the rules of war have changed, and the invasions and genocide come in the form of economic recovery packages (or as IMF/WB would put it: "Structural Adjustment Programmes") and foreign debt. And therefore, it was appropriate that Argentina should inaugurate the Museum on Foreign Debt.

    This news item reports

    Foreign Debt Museum Opens Its Doors
    By Mary Milliken
    Fri Apr 29, 5:40 AM ET

    "Three years after staging the largest debt default in modern history, Argentina on Thursday opened what may be the first Museum of Foreign Debt to teach people the perils of borrowing abroad...

    .... In one corner, a pink, doll-size play kitchen represents the recipes of the International Monetary Fund, which Argentines blame for encouraging the heavy borrowing in the 1990s that led to the catastrophic economic collapse in late 2001.

    "We chose a play kitchen because we are always so innocent and believe in magic recipes from abroad," said museum designer Eduardo Lopez. "Look, we open the freezer and the oven and there is no food."

    But the museum in the University of Buenos Aires economics department doesn't dwell only on this latest debt crisis: It goes back to Argentina's first default in the early 1800s and gives a detailed account of the last 30 years when the country's foreign debt woes snowballed.

    Visitors can delve into a spongy "black hole" -- the place where all that borrowed money ended up.

    "I liked best the black hole with everything the debt swallowed -- education, families, jobs," said Fabian Jader, 34, an opening night visitor. "I feel anger and pity for the people, but above all helplessness."

    Argentina's economy has recovered at a healthy clip in the last two years and the country is on the cusp of ending its default of some $100 billion (52.3 billion pounds) in foreign debt.

    But 40 percent of the population in the once-wealthy nation still lives below the poverty line, many of them in the crime-ridden industrial rust belt around Buenos Aires.

    "People know absolutely nothing about how we accumulated all this debt, they only know about the misery they have seen lately," said museum director Simon Pristupin, who dreamed up the idea in 2001 and struggled to convince sceptics...."