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Yeh aaj kal ki IIM salaries...
March 22, 2006
Politeness demands that one never ask a woman her age or a man his salary. Except in the month of March, when details of the number of zeros on paychecks of IIM grads becomes the stuff of dinner table conversation. And national debate.
Right after Barclays of London made a record offer of £ 105,000 to IIM Bangalore graduate Gaurav Agarwal, calculators were pulled out and another 'hail IIM' headline created. Rs 84 lakhs is a lot of money and the public is both fascinated and bewildered. What have these 20 somethings done to deserve this good fortune?
The media, which hypes these salaries in the first place, then decides it's time to introspect. 'Are IIM graduates worth their weight in gold?' asks NDTV. Seventy per cent of the viewers respond with a 'no.'
Of course, it does not really matter what the viewers think. Who is worth how much gold is really a question of demand and supply. As Amit Varma noted on India Uncut, the situation is quite like the media asking why certain authors are getting huge advances 'while so many writers starve in attics or Prithvi Theatre or wherever it's cool to hang out these days.'
He elaborates, 'What is the worth of a good or a service? Whatever a buyer is willing to pay for it. The publishers who pay big advances for a writer's book are doing so because, from a commercial point of view, they see value in it. They do it with their own money, not taxpayers' funds or something. If they've made a mistake, their bottomline will suffer for it. Similarly, the companies forking up these large amounts for these IIM grads clearly see value in the men and women they're hiring.'
I couldn't have expressed it better. The companies that hire these graduates think they are worth the price paid. If they are not, the 'going rate' will fall in the years to come. Or, recruiters will look elsewhere for talent!
Then and now
Value also depends on the time, place and circumstance. Today, an IIM grad is worth much more than he/ she was just a decade ago.
The class of 1993 -- which I was part of -- would be hard-pressed to recall its average salary. Such statistics never received media attention back then.
The liberalisation process had just started, our senior batch was the first to be recruited by McKinsey. But the average Andy got a Rs 10,000-Rs 15,000 salary in hand with shared accommodation, if lucky, and that was considered rather good!!
Things changed when:
a) Foreign recruiters, especially Wall Street, discovered the IIMs. They started offering salaries that sounded fantastic when dollars and pounds were converted into rupees.
b) As more students with prior work experience started joining the IIMs, it reflected in the salaries and positions being offered. This year's 'top dog' at IIM-Ahmedabad is an IPS officer of the 1988 batch who is joining the RPG group as a CEO, at a compensation of Rs 34 lakhs.
Similarly, Gaurav 'Rs 84 lakhs' Agarwal, is 29 and has an IIT degree, an MS from Berkeley and two years of work experience in the US.
Given that the average starting salary for MBAs on Wall Street is $ 100,000 and expected to rise to $300,000 in five years, his $ 193,000 is justified by his past profile. And his future value to the company.
Let's face it. Management pays more than many other professions because it is seen to create wealth. And, within management, investment banking pays a hell of a lot more than marketing or HR because of its extremely direct linkage with money.
If an MBA like Gaurav is great at creating complex financial models (which is what whizkids like him are hired for), he can earn his firm millions of dollars. His efforts can be quantified -- to an almost exact degree -- in terms of additional dollars and cents earned for the firm. That's not the case in every profession.
Say, a journalist writes a great article. It's unlikely that his or her actions result in extra sales of 20,000 copies. And even if that happens, attributing success to a particular individual is not all black or white. The marketing department may say they ran a special promotion, distribution may say they pushed it on the news stands.
Of course, over a period of time, great journalists will acquire a reputation and command a price. But journalists as a whole will always be paid far less than investment bankers.
Due to this, a lot of folks who might have made great journalists end up as Vice Presidents of Blah somewhere. But that's the individual's call. If you don't believe you have it in you to be 'outstanding', you prefer to stick where the averages look better.
Hopefully, you retire by 40 and start painting and discovering your inner child. Or, you get hair weaving.
And while we're discussing the 'obscene' paypackets to a few IIM grads, it's important to note the cascading effect these packages have had on salaries in general. Average salaries this year have moved up from the Rs 5-7 lakh range to the Rs 7-9 lakh range in the top tier of B-schools. At IIM-A and C the average has almost touched 10!
Indian companies in particular have become more generous -- at NMIMS this year, the biggest recruiter was the Kotak group and it gave a 30% raise in packages. Marico not only hiked salaries but ran an entire image-building campaign to convince B-school grads that it was a company with 'uncommon sense'. A shift mere pre-placement talks to the era of pre-placement television!
But while placements have been rocking, the process itself remains extremely stressful -- because everyone can't get placed on Day 0 or does not wish to. An IIM student who is keen on a marketing job -- the kind which does not offer headline-grabbing salaries -- writes in his blog:
'At the end of the first day of placements, a television channel van came over to the campus. Those guys filmed the students with perfectly formed teeth and high grades and glorious job offers in London and Hong Kong and telecast it to homes around the nation, including my aunt's in Indore and another aunt's in Patiala. So aunts and uncles who talked to me sometime when Jesus Christ was still a kid are calling me up and deeply regretting the fact that I am jobless in spite of being at IIM.'
In fact, the chap had applied to 40 companies -- 34 of which were still to visit campus at the time he wrote that lament. A couple of days later, he got a job with one of India's most respected marketing companies, but at a rupee salary. Aunts and uncles in Patiala and Indore will still be asking, "Bas, itna hi (That's it? Only so much)?"
Keeping up with the Jainses
The entire hullabaloo can be summed up in a single sentence: satisfaction with how much you earn is always relative to what your neighbour earns.
Graduate students of public health at Harvard University were asked: 'Which world would you prefer (prices remaining the same)? You get $50,000 a year and others get half that. You get $ 1,00,000 a year and others get double of that.'
A majority of people preferred the first scenario where they were relatively 'poorer' but better off than their peers.
That is why hearing about these tall salaries makes the aam junta uncomfortable. It does not matter how well you are doing, when someone is doing a lot better than you.
But then, life is a marathon. Many of us believe money isn't everything. But even if you decide to make money your number one goal, there's no telling who will actually race ahead of whom at which point in life.
Recently, I read in the papers about a batchmate who is getting a Rs 1 crore salary. He did not start his career with a high profile consultancy, foreign bank or HLL (which in its time was as sought after a job at IIMs as Lehman Brothers is today).
And yet, because he has five years of experience in a sector that is currently booming, he is extremely valuable. So much so that when a rival tried to 'steal him away', his current employer practically doubled his salary without batting an eyelid.
And oh, statistics are not against the Underdog either. A recent issue of Businessweek magazine asks the question: 'Is the MBA overrated?' The magazine studied the five highest-paid executives at each of the S & P 100 companies in 2004 and found that only one out of three had an MBA. Of the MBAs, only half went to top 10 ranked B-schools.
To sum up, an elite MBA is like membership of an exclusive golf club. It may, however, be the caddy who ultimately becomes a world champion.
Here's to the potential champion, in all of us!
Rashmi's earlier columns: