Why do top MBAs earn substantially more than the lot?

What does an MBA education signal so strongly to the recruiters?


We all know that pursuing an MBA is a rigorous and expensive endeavor.  Most of us would go for a top MBA course, when offered, nevertheless. And that’s because having a top B-School credential on your resume is a lifelong asset to have and has great returns in terms of career opportunities, kinds of jobs offered and the compensation received.

But have you ever wondered why do top MBAs earn substantially more than their colleagues and enjoy a differential treatment in terms of hierarchy and pay?

The answer lies in information economics. Yes, in fact, Nobel Laureate economist Michael Spence has even worked on this problem which he termed as ‘Job Market Signalling’.

So a professional pursuing a top MBA course is actually signaling to the recruiter a differential set of skills that makes him a more profitable investment for the recruiter compared to others.

What skills get projected by having a top MBA degree on your resume?

Academic Rigor

Each of the top ranking MBAs is academically rigorous. The admissions process is extremely competitive and tests the candidates on their academic abilities. Their scores on standard tests further show their ability to undergo such a program.

Also, during the program, the coursework is rigorous and completing the course entails understanding of obscure management, economic and mathematical principals that also display their academic ability.

Now not necessarily all academically strong candidates can make great potential hires, but it reduces the information asymmetry to a certain extent in lack of other factors. So, academic strength is generally considered a positive trait in the job market.

Hard Work and Prioritization

Most of these programs require participants to spend sleepless nights to complete the course. The class schedules, group activities, course submissions, project works, internship stints and tours keep them busy all day and all night.

The fact that a person has completed such a course is highly indicative of her ability to walk that one extra mile required to differentiate her work. It also shows that she is able to prioritize her life amidst thousands of ongoing activities.

Dealing with uncertainty and decision making

This point can be argued, but recruiters believe that the top MBAs are better placed as compared to others while dealing with uncertain and ambiguous situations. Not only that they are trained to take decisions under uncertainty using by running complex analyses and developing decision models, but the fact that they enrolled for the course itself speaks a lot about such traits.

Almost all MBA courses are very expensive and might make you end up spending all your life savings. Taking such a course shows a certain degree of risk tolerance that is needed in executive decision making.

Practical approach to problem-solving

Finally, most of the MBAs are trained to look for simple applicable solutions to a problem, though they may run complex analyses on tones of data before they actually head for that simple solution. They are known to take practical steps within the practical constraints of time, cost and quality. This makes them yield more profits on an average than other employees.

Networking Skills

An MBA exposes the candidates to a high-quality network that is a great boon for any company. Post their MBA education, they are generally in touch with each other and do take advantage of their networks to quickly arrive at a solution to a problem that they face at work.

Is there an alternate way to acquire such skills without doing an MBA? We believe there is. Read this article – How to showcase MBA like skills to recruiters without an MBA? to know how you can do so.