IIMs placement Salaries - the truth

Have you ever marvelled at the salary packages being offered at B-Schools? Especially the crore plus salary packages which the media never stops talking about? The sceptic in you may have questioned the veracity of these astronomical starting salaries but there was no way to find out the truth. Many of the top rung management institutes have a policy of not revealing the highest salary package. At IIM Ahmedabad we followed a policy of neither admitting nor denying any story related to highest salary. The truth about highest salaries was always known on B-School campuses. To some extent we are thus guilty of a collective silence across the campuses on the abuse of this piece of information.

Recently, a leading daily published an unverified report stating that an IIM Ahmedabad (IIMA) student had bagged a salary of more than 1.44 crore rupees. The news article soon became one of the most read news articles on the newspaper’s website. Stratospheric salaries equal highest readership, the equation seems very clear. The article was misleading and the IIMA Media Cell published a rejoinder in its blog stating the figure as incorrect. As to be expected, the rejoinder did not get as many reviews as the original report.

The publishing of the rejoinder in a blog was in some sense a fundamental yet silent shift. It signalled the unwillingness of the student body to be mute spectators when incorrect information is published. It signalled the use of a new media in connecting to the outside world. It signalled to the world that IIMA students are mature enough to disassociate themselves from a very flattering portrayal if the portrayal is not true.

The truth is that the readers are being fed garbage. The highest salary offered in a top rung management institute is typically a dollar denominated salary. The first distortion involves converting the dollar figure to a rupee amount. The two are not comparable as the dollar salary would not be earned in India but in a country with a substantially higher cost of living. The second distortion is to refrain from mentioning the assumptions underlying the bonus computations. Bonus component of a salary package is contingent on performance. Consider a firm which stipulates that performance linked bonus would range from a minimum 40 per cent to 300 per cent. Which number should be used for reporting – 40 or 300 or an average value? In our analysis many of the eye-popping highest salary figures can only be realised if the highest bonus rate is assumed. This is an overly optimistic scenario which would rarely materialise. Some firms may have a one-time signing bonus. Hence the highest salary figure may not be the same as a yearly salary as the signing bonus would not be applicable in subsequent years. The assumptions about bonus component are of course too mundane a detail to grace a front page report. Similarly, I am sure, readers would like to be spared the reporting of exchange rates at which the dollar-rupee conversion was done. Forget the fact that the bonus is likely to be paid, if at all, at a later date and hence subject to currency risk.

The highest domestic salary is not free from distortion too as it most likely involves substantial performance linked bonus. Additionally, what gets reported is the Cost to Company (CTC), a fuzzy word whose definition varies from one firm to another. The take home salary is sometimes a tiny fraction of the CTC. Not all firms may declare the compensation package or the breakup at the time the press release is circulated. Not all firms may want to declare compensation packages. Typically this happens for the PGPX programme where students have an average of more than ten years work experience and are placed in middle to senior level positions.

The story does not end with the reporting of highest salary. Soon one management institute is compared by the media to another based on the highest salary offered at the two campuses. Little attention is paid to the fact that there are may be no equivalence of underlying assumptions used for determining the highest salary offered between institutes and even from one batch to the next for the same institute. The highest salary is of course not representative of the entire batch. The fixation with this one figure in turn fuels an aspiration among youngsters to announce to the world they have arrived. What good is it to study in a business school if you did not get the highest salary on offer? It matters little what is the role on offer, the location concerned or the associated career path. Every job offer can now be safely measured and compared to another based on the salary component. The formal announcement of the highest salary figure and its associated prize winner is the final crowning glory of years of hard work. And in this mad rush to identify the jackpot winner the media loses sight of the fact that the campus placement is only the first step in an arduous process of facing challenges and building oneself for a leadership role. It is not the end of the journey, just the beginning.

Strangely, the media frenzy about highest salary figures at management institutes seems to have an India flavour. I ask the reader to find out from the internet the highest salary package at any elite US business school last year. You may be surprised at the lack of information. Most schools report median or average salaries and not highest salaries and foreign media houses do not seem to have developed a taste of investigative journalism in this field. Perhaps they have realised that there are far more important secrets to uncover than highest salaries at business schools.

The information on average salary has the same deficiencies as the highest salary figure. The only positive is that because of averaging the figure does not ‘belong’ to anyone. It has no claimant since few would want to be called ‘average’ I guess. It is a tolerable nuisance simply because of its impersonal nature. In contrast, the identification of the student receiving the highest salary can potentially expose the student to a lot of undesired attention from the underworld.

With the rise in costs of an MBA education, many students are forced to take educational loans for covering their expenses. Hence the salary package post an MBA education is an important determinant of the viability of investing two years of one’s life in an MBA education. My suggestion is to never base a decision to take an educational loan on the highest package but on the average salary figure, that too after making sizeable reductions from the CTC value to arrive at the take home salary. The highest salary figure thus serves no purpose of the reader except two. One is the harmless delusions of grandeur experienced by a section of current students and alumni of a management institute from the reflected glory of a non-achievement. The second is the potential abuse as an advertisement tool for luring unsuspecting MBA aspirants.

The overriding focus on jobs and salaries and payback periods takes one away from the idea of investing in an education for progress and development, both at an individual and at a societal level. If we need to change this situation we need to stop focussing on the highest salary figure as a first step. At IIM Ahmedabad, we stopped reporting highest salary figures years ago. We report the average salary separately for domestic and international offers. There is little merit in comparing management institutes on any salary dimension of an outgoing batch, highest or average or some other measure of central tendency. If compare you must, compare the impact on society by an institute’s students and faculty. Unfortunately that is a much difficult proposition than a simple comparison of highest salary of the outgoing batch.

Featured in The Economic Times on March 12, 2010

The above has been sent by Partha Sengupta.
I couldn't agree more with the writer.
I have known boys who have gone abroad to do MBA after taking loans on their houses and coming back without a job.
This competition between institutes as to who gets the highest salaries on placement is driving them all crazy.
However, the writer says that IIM Ahmedabad does not give out the details of salaries offered but it still comes outin the papers.
How?