Truer tale of MBA compensation

A peculiar problem that MBAs who graduated a few years back face around March every year is to defy the well-intentioned taunts of their near and dear ones....

A peculiar problem that MBAs who graduated a few years back face around March every year is to defy the well-intentioned taunts of their near and dear ones,about why they are drawing much lower salaries after a few years in the corporate world,compared to the skyscraper salaries that the current graduating batch of MBAs are supposedly being offered right out of classrooms. In this piece,we look at the truth behind the eye-popping numbers that get widely reported about offers to a select few management graduates every year.

Essentially all the crore-plus salaries are dollar,euro or sterling denominated numbers that have been converted into rupees. No Indian corporate would find even the smartest of students so valuable that it compensates in excess of a hundred lakh rupees in the very first year. Hypothetically,even if they do find some star student who is worth that compensation,it is unlikely that the company would make that offer. Thats because compensation,like promotions,even in the private sector,is a blend of performance and seniority. If a new manager is offered such overgenerous compensation,the other managers would have to be paid at least as much.

The headline-grabbing numbers are almost always offered by investment banks with overseas positions. The starting annual base salary ranges from $60,000 to $1,00,000. All top-tier investment banks offer similar base salaries. Apart from the basic salary,investment banks pay bonuses that average around 100% of the base salary though the number varies according to the job profile. A person working in equity research could make 30% of his base salary as bonus,while a banker in M&A advisory could make around 150% of the base salary. More than 200% bonuses in the first year are virtually unheard of. All told,a graduate with an overseas offer from an investment bank can expect to receive about 200% of his basic salary. There is an expansive range on the base salary as well as the performance component. That said,investment banks do not differentiate between IIMs as far as compensation is concerned. Also,if a bank makes three offers at a certain IIM,it is unlikely that a particular student is offered substantially more than others. So,one student getting considerably higher offers than the rest,as reported in the press,should be taken with loads of salt.

Placements and media is largely handled by students at IIMs with one faculty member overseeing them. Students who handle media,more often than not,selectively leak information to the press and journalists lap it up for its sheer sensational value. For instance,in the year I graduated,the media secretary happened to be a good friend of mine. He got me interviewed by NDTV as the student who had received the maximum compensation that year. I did not have a problem with the two minutes of fame except that there were at least five students who had got the same offer as I had. Moreover,I was given only a range,and the upper range was what got reported on TV.

Media secretaries,not without reason,are chosen from students who have interest in marketing and advertising. They try to make sure that their institutes placement gets maximum visibility in the media and the best way to ensure that is to highlight the upper ranges of possible compensation. From the students perspective,higher salaries portend a flattering portrayal of their alma mater. From the medias perspective,stratospheric salaries mean higher sensational value.

A total compensation of say,$2,25,000 is pretty high but it sounds enormous when you convert that into rupeesa crore. An elementary school teacher in the US makes about Rs 15 lakh per annum. Thats more than ten times the salary a primary school teacher gets in India. On an apples to apples basis,a Rs 1 crore salary in a high-cost location like New York or London is probably as fantastic as a Rs 10 lakh compensation in India. It is the multiplier of 45the conversion rate of dollars into Indian rupeesthat is doing the trick. Those multipliers are even higher for euro and sterling denominated salaries.

Eight-digit salaries may seem impressive when looked at in an isolated,currency converted way,but they arent as remarkable as they seem when you look at the salary structure there. As a comparison,the average salary in Nepal in the manufacturing sector is about Rs 1,000 per month. A compensation of Rs 12 lakh,which these days isnt a very high number in India,is about 100 times the annual compensation that an average factory worker makes in Nepal. Compensations in stronger currencies linked with high costs of living,do seem imposing when viewed from the perspective of local living costs and after conversion into domestic currency . The context is lost in the translation between currencies and the sensation-seeking reporting by the students.

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Reporting stratospheric salary levels of graduating students,I think,does more harm than good. Students entering the MBA programme tend to focus too much on bagging headline-grabbing offers,irrespective of their interest in those job profiles. Near and dear ones,especially parents,tend to have unrealistic expectations and this creates additional anxiety for students. Any domestic compensation which is about 10% of those dollar denominated salaries may seem like being grossly underpaid,because you dont have much of a perspective at that stage of your career. It obviously doesnt do a world of good to students motivation and they sometimes see themselves as disasters vis-à-vis their batchmates who are earning ten times more than them.

Young management graduates at times mistakenly think of placements as a make or break event of their careers. Students focus excessively on compensation in selecting their first jobs,while the criteria should actually be interest,passion and enthusiasm for the chosen field. These young graduates in the next 30-odd years would spend the bulk of their waking hours in the careers they choose during the placement process. Choice of careers based on flawed benchmarks rather than interest in the preferred stream would hurt them in the long run. Sensationalising compensation by a select few is a disservice to the rest of the students.

The author,formerly with JPMorganChase,is CEO,Quantum Phinance