This year's highest paid MBAsDecember 27, 2010: 1:03 PM ET
One of Wharton's top MBA grads landed a whopping $350,000 base salary, reflecting the burning competition among top private equity firms for talent and the earnings disparity among business school graduates.
By John A. Byrne, contributor
(poetsandquants.com) -- This year the MBA who landed the highest annual base salary -- a whopping $350,000 to start -- graduated from the University of Pennsylvania's Wharton School and went into a private equity job with a firm in New York. The starting salary alone was more than three times as much as the median pay -- $110,000 -- of the MBA's classmates and 14 times the $25,000-a-year job the lowest-paid Wharton MBA assumed.
Yet, that highly paid person is hardly unique. MBAs from at least five U.S. business schools -- Wharton, Stanford, Chicago, Columbia and Northwestern -- report that the highest base salary received by a 2010 graduate was $300,000 or more. Harvard Business School's top grad this year pulled down a $250,000 base salary, while the highest paid grad at MIT's Sloan School got $180,000 in base pay.
At Wharton, the $350,000 base was not even a record. In 2009, when the nation was in the midst of a severe recession, one Wharton MBA landed a hedge fund job in London with an unprecedented base salary of $420,000, while another grad from the school gained a $400,000-a-year post with a private equity firm in New York. Back in frothier times such as 2007, a Wharton MBA took a PE job in London with a base pay of $392,000 a year.
Yet, as extraordinary as these sums are, they still fail to capture the total compensation these MBA rock stars got. Once you tote up a signing bonus, a guaranteed year-end bonus, and the reimbursement of relocation expenses and tuition, it's relatively easy for a top-flight MBA to earn in excess of half a million dollars a year in compensation in the first year out of business school.
When Wharton published the highest total compensation of its graduates, a practice it ended in 2007, the numbers were even more staggering. In 2004, for example, when the highest reported salary of a Wharton MBA was $180,000 for a private equity job, the largest first year total compensation reached $680,000, a number that in all likelihood included a generous sign-on bonus, a year-end bonus, relocation and tuition reimbursement.
This year, for instance, nearly four out of every 10 Harvard MBAs who went into private equity received "median other guaranteed compensation" of $155,000 each. Some 9% of Harvard's Class of 2010 took jobs in private equity.
By and large, the highest starting salaries these days are being paid by private equity firms and hedge funds, which recruit far fewer MBAs than the elite consulting firms and investment banking partnerships that buy MBAs by the boatload.
Among the largest private equity players, TPG and KKR (KKR) are known as the highest paying. Not far behind, according to a recruiter for a top private equity firm, are Blackstone (BX), Bain Capital, Carlyle, Providence, and Apollo.
Of course, the very highest paid MBAs tend to be special cases. These graduates bring extraordinary work experience and track records that convince firms that they are worth the money. In private equity, that means hiring grads who already have been in the business -- often as high-performing analysts for the same companies that hire them back. Private equity, moreover, is taking a smaller percentage of the top MBAs. At Harvard, private equity and leveraged buyout firms hired just 9% of this year's class, versus 17% of the class in 2008.
A recruiter for a top private equity firm that recruits from only Harvard and Stanford attributes the size of these salary packages to a hiring arms race among the top firms.
"Many of them [private equity firms] take back their former analysts which means those spots are incredibly limited for anyone who hasn't worked in PE before school," says the recruiter.
Often, these recruits already were pulling down big salaries before deciding to go to business school. "Even more shocking is the fact that some of the pre-MBAs were made offers that were easily $500,000 to $600,000 over two years," adds the recruiter. "That's right, the 24-year-olds who were made offers when they were eight months into their two-year analyst programs, just eight months out of college."
Most business schools try to play these numbers down because they don't want to raise unrealistic expectations among applicants and students. After all, the average starting pay for MBAs from most elite schools is a third or less of these outsized gains.
The University of Virginia's Darden School and the University of Michigan's Ross School only report median and average compensation numbers so that applicants never know how much the lowest or highest-paid graduates earn in base salary. Harvard Business School and Dartmouth's Tuck School takes the focus off their highest paid grads by reporting only the 75th percentile and 90th percentile numbers.
On the other extreme of the earning spectrum, Wharton reported that the lowest-paid MBA in the class of 2010 received a base salary of $25,000 a year for a job in the "media and entertainment" industry in the Midwest. At Stanford, the lowest paid MBA this year accepted a health care job paying $40,000 -- less than the lowest paid non-profit job, which paid $50,000 in base salary.
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