Why Harvard MBAs are earning less money

Cheer up, you can still expect to make $120,000 straight out of school.
Cheer up, you can still expect to make $120,000 straight out of school.
Image: Reuters/Brian Snyder
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This originally appeared on LinkedIn. You can follow John A. Byrne here 

If you graduated this year from Harvard Business School with what is arguably the most valuable degree in the world, how much money would you make out the gate?

The answer is not as much as last year. The median starting salary of a Harvard MBA this year was $120,000, some $5,000 less than a year earlier.

But don’t read too much into the decline. The Class of 2013 is making slightly less in base salary because they’re venturing into industries that generally pay MBAs less money than finance and consulting. The big drop occurred in the financial sector which took only 27% of this year’s Harvard class, down from 35% last year.

It’s as if Harvard Business School’s love affair with Wall Street is over. Only five years ago, in 2008 when all hell broke loose on Wall Street, financial services hired 45% of the graduating MBAs from Harvard Business School. But Wall Street has been plagued by massive layoffs and big cutbacks in the hiring of new talent ever since Bear Stearns and Lehman Brothers went bust five years ago.

The single biggest drop in the financial sector occurred in the industries that paid MBAs the most money–private equity and leveraged buyouts. HBS grads heading into those two fields were down to 9% from 15% a year earlier—in all probability that alone caused the $5,000 drop in overall median starting salary for the Class of 2013. Only five years ago, in 2008, nearly twice as many Harvard MBAs, some 17% of the entire graduating class, went into the PE and LBO fields.

HBS grads going into investment banking also declined to 5% of this year’s class from 7% last year. In 2007—the year before Wall Street’s implosion occurred—the ibanks absorbed 12% of Harvard’s graduating class. This year’s MBAs going into investment management fell to 5% of the class, down from 8% last year and 12% in 2011.

Other industries, which tend to pay MBAs far less money, have gladly taken up the slack. Some 18% of this year’s class went into the technology industry, for example, up from just 12% in 2012, while 7% went into the consumer products industry, up from a mere 3% last year. Another 5% took jobs in the non-profit or government sectors, up from 3% in 2012.

Those industries tend to pay substantially less than either consulting or financial services. The median starting salary in the technology sector, for example, was $115,000–$10,000 less than financial services and $20,000 less than consulting. The median base salary in consumer products was $100,000–$25,000 below financial services and $35,000 below consulting.

And what about the big decline in private equity and LBO jobs? Harvard MBAs who went into that sector this year reported the highest compensation of any: median starting salary of $150,000, with nearly half earning a $26,000 signing bonus. Yet, the big bonanza was “other guaranteed compensation” in those fields, with 45% reporting it was a median $135,000. If you were lucky enough to gather the medians in salary, bonus and other comp this year that meant you were an MBA who would earn $311,000 out of the gate.