A Look at Salary Data (from an MBA perspective)

The issue of pay is an extremely sensitive one. It's personal, it's private, and it's very important if you want to support yourself. You should periodically evaluate your salary and make sure you're being at least fairly compensated (or you can be like a friend of mine, whose goal is to be overcompensated).

One good tool I've found for current, prospective, and former MBA students to get a feel for what MBA holders (An aside: I don't like calling people "MBAs" because the term suggests a nonexistent homogeneity.) are being paid is a survey put out by the Graduate Management Admissions Council (GMAC).

Before I continue describing the survey and my take on the recent results, let me first issue a disclaimer. The GMAC is a not-for -profit "educational association" that administers the GMAT. Seeing as the GMAT is a computer-administered test that costs $250 a person to take I'm pretty sure that despite the fact that it's not the organization's goal, it manages to turn a profit anyway.

Most surveys are conducted by people with an agenda or some kind or another. In fact, any time I see a number or a presentation put in front of me, my first question is "Who put this together, and what is their agenda?" In this case, I assume the GMAC's agenda is to get people interested in going to business school to get an MBA. This will make the schools who run the GMAC happy, and it will bring the GMAC more of those hefty GMAT test-taking fees. I like to think of GMAC as basically a marketing tool to get people to want to go to business school. In fact, I think all of the MBA surveys you see (US News and World Report etc...) are mostly marketing tools used to get people attracted to MBA programs, and the data therein should be considered, but considered suspiciously.



That said, I still think this survey is useful. In fact, I am one of the survey participants myself, and have been filling out the survey every year since I got my own MBA. The results of the survey make sense to me, and I use this as a general data point when evaluating my own salary.



The entire survey is available here: April 2007 MBA Alumni Perspectives Survey (gmac.org) and I recommend taking a look at it.



The questions on the survey run the gamut from job functions to job satisfaction, to whether or not you are satisfied with your MBA degree, but I immediately zeroed in on two questions: Annual Base Salary and Weekly Work Hours. I find the other questions interesting, but I care the most about this hard data.



Flipping to page 38 of the survey, based on 2,577 respondents who graduated between 2000 and 2006, the mean annual average salary was $94,825, with a median of $90,000 and a 25th percentile of $70,000. This is a good general starting point, but these broad numbers are skewed by greater than average earnings in some industries such as consulting, and below average earnings in things like nonprofits. It's hard to place my salary (which is below the mean) within this group.



On the next page, salaries are broken out according to job function. Here we can see median earnings broken out by industry group. I'll show a few selected groups below:

• Consulting: $100,000



• Finance/Accounting (me): $93,000



• Manufacturing: $90,000



• Nonprofit/Government: $67,800

And broken out by job function:

• Consulting: $100,300



• Finance/Accounting (me): $87,000



• General Management: $100,000



• Human Resources: $84,760



• IT/MIS: $87,000

And finally, by job level:

• Entry Level: $60,000



• Mid-Level (me): $86,000



• Senior Level: $100,500



• Executive Level: $120,000

There is also one other interesting piece of info that breaks out salaries by age. It shakes out this way:

• 27 and younger: $56,950



• 28 to 34 (me, just barely): $88,000



• 35 and older: $100,000

I just barely fall into that second group, so I'm going to unscientifically say that these numbers put people my age (28) somewhere between $70,000-$80,000 a year. My base is above $80,000.

One last piece of salary data I would have liked to have seen in there was a survey of salaries by job location. I know that people in NYC generally make higher salaries than those in Idaho, for example, but this wasn't in the report.

From the above data, this we can gather that senior level consultants make the highest base salary out of all MBA graduates. However, I happen to know a few consultants, and we need one more piece of data before we can be jealous of their cushy jobs and high salaries: hours worked.

Flipping ahead to page 33, we get to the "Weekly Work Hours" table. According to the 2,964 respondents, 4% worked fewer than 40 hours a week, 37% worked 40 to 49 hours a week, and 59% worked 50 hours or more each week. Unfortunately, I fall into that last category.

The first category of less than 40 hours a week is extremely tiny. I don't think people go to business school to work nine to five jobs. As a brief aside here, this category made me think of Timothy Ferriss and a book that I've heard a lot about lately, but have not gotten the chance to read - The 4-Hour Workweek: Escape 9-5, Live Anywhere, and Join the New Rich. I'm not going to recommend it because I haven't read it yet, but I certainly plan to.



Getting to the information I was looking for, the table on the next page shows that the 411 respondents in the consulting industry worked an average of 51.8 hours a week, whereas those who worked for the "Nonprofit/Government" sectors worked an average of 44.6 hours a week. The difference of 7.2 hours doesn't seem like much upon first glance, but think about it for a second... this is an entire day's worth of work for most people. This seven hours represents the difference between coming home in time for dinner and eating cold leftovers or fast food every night. It represents the difference between leaving your office while the sun is still shining and getting home just in time to stumble into bed. It represents the difference between a Saturday morning in the office and a Saturday morning at the beach. It represents the difference between stressful, harried days fueled by caffeine and relaxed days fueled by conversation with your coworkers and a feeling that you're doing something good for the world. I think you get the picture here.



Doing a little math on those results, dividing the median consulting salary of $100,300 by 52 weeks in a year gives you $1,928.84 a week. Further dividing that by 51.8 working hours in a week gives you a consultant's "hourly salary" of $37.24.



The same computation for "Nonprofit/Government" would start with $67,800, divided by 52 weeks, which gives you $1303.84 a week. Further dividing that by 44.6 working hours in a week gives you a "Nonprofit/Government" "hourly salary" of $29.23 an hour.



Of course, one glaring omission from the math above is that it does not factor in bonuses, which can be rather large for private sector consultants and rather small for government and nonprofit entities. In fact, the survey also goes into additional compensation and shows on page 42 that 22% of Nonprofit/Government respondents reported getting no additional salary beyond their base salaries, as compared with only 6% of consultants. So consultants are rewarded even more handsomely than $37.24 an hour.

Even if you don't have an MBA, it's a good idea to periodically review salaries for your job function to be sure you're getting everything you should be. External sources for salary data are a huge negotiating point when you're talking with your boss/hr representative about a raise or starting salary. Salary.com is a great starting point for most areas, and I'm sure there are more specialized surveys out there on the internet if you dig around and look for them.

Market Turmoil

I love the recent market turmoil. Yes, the value of my 401(k) has been going down, but I am not looking to access those funds for another 30 years or more, so I don't give a toss about these little intra-year selloffs. The DJIA broke through 14,000 a few weeks ago, and it closed under 13,000 yesterday for the first time in a while. People are flocking to invest their money in treasury bonds, causing yields to drop. There is also some speculation that if the market weakness keeps up, the Fed will lower interest rates at its next meeting.

I think that falling yields bring up an interesting scenario for someone with an ING Direct or an Emigrant Direct savings account. If the fed does lower rates, there's a good chance that these banks will lower the interest rates they credit on their savings accounts and the interest rates they offer on their CDs. If you think that this is going to happen, and you have some cash that you aren't going to need for a year or so, you might want to think about putting your money into a one-to-two year CD right now to lock in the higher rates.

I won't say that's definitely the move you should make right now because I don't even try to forecast the way interest rates will move in the next year given how impossible that stuff is to predict with any reliability. All I'm saying is this is something that could happen and you might want to consider doing with a portion of money that you're not going to need for the next year or two. I'm still debating doing it myself, but I don't think rates are going to fall dramatically.

Just wanted to mention one other thing. A stock that I wish I'd bought a long time ago, Moody's Corp (NYSE: MCO) has fallen on hard times lately. Moody's is basically a monopoly-type business, the kind of business that Warren Buffett loves (and he owns a good chunk of MCO stock as well). Investors have sort of been losing confidence in Moody's and other rating agencies lately due to percieved conflicts of interest and quality of ratings. (Do a search for "constant proportion debt obligations" and "moody's" to see an example of this.) It bears further investigation!

Anyway, don't worry about the market's decline. Just watch as you accumulate even more shares of your S&P Index fund.

Fast Money is one of the worst shows on TV

I've posted about this before, but the show "Fast Money" with Dylan "The Rat" Ratigan is definitely still one of the worst shows on television.

I happened to be flipping by it tonight and the guys were laughing about the Chinese exec that hung himself due to high levels of lead paint in certain toys. The big bald headed guy made a comment along the lines of how 'those high product quality standards wouldn't fly in the US' or something like that. They were all chuckling.

I watch a few minutes of this show every now and then and all it is is a bunch of trumped-up sensationalism. At least Cramer knows what he's talking about. Dylan Ratigan is just a complete loser who knows absolutely nothing about investing. I don't know what kind of person would watch this show and bet on stocks because of it, but I'm guessing it might be the same kind of person that hangs out at the off track betting place all day.

I just had to rant here. This show is CNBC's blatant attempt at capturing ratings by making a show in the style of Jim Cramer's Mad Money, but it is just a big pile of crap. None of the guys really know what they're talking about, they don't give any real recommendations, they only talk about short-term things, and Dylan "The Rat" Ratigan is not only unlikeable, he's also ridiculously unqualified to be running a show like that.

Do yourself a favor- do not watch this show.

A slower paced show, but one that is much more worthy of your time because it actually discusses business issues and strategy, I happened by an episode of "Digital Age" this weekend where the host interviewed Mary Meeker on Google and the future of the Internet. If you have a few minutes, this episode is available on YouTube, and it's worth watching. The host sort of freaked me out a bit with his incredibly stiff face and delivery, but Meeker's insights are really great. You can access this episode of the show here.

Glad my down payment savings are in cash/Some current investment ideas

The recent market turbulence has made me even happier that I keep the bulk of my down payment savings in an ING direct account. I currently have about $128,000 in deposits at ING Direct, the vast majority of which is in my Electric Orange account earning a 5.30% APY. Sure, this isn't a fantastic return, but this is money I am going to need within the next couple of years in order to make a down payment on a house, pay for moving expenses, new furniture, etc... When the market slides, I can be glad that no matter what, when I went to my account balance on August 11 (this morning), I would have about $180 in interest accrued to me. If I don't add to my balance, it goes up by about $500 a month due to interest earnings.

Of course, I do have a big chunk of my networth in the market, but this is mainly my retirement savings, which I think will do better in stocks over the next 30 years than it would do in a savings account or in fixed income instruments.

My thoughts on the recent market turmoil? I am not very worried. Markets fluctuate, sometimes dramatically. Don't turn into a lemming and follow the market off of the cliff (if that's where it ends up going). If you invest in individual stocks, however, let the gloom and doom work to your advantage. Get greedy when other people run scared. If you see a great company being unfairly punished, buy some stock or add to your position.

I think that over the next year or two, there is going to be a really good buying opportunity for some of the homebuilders such as Lennar, DR Horton, Pulte Homes etc... It could be right now, it could be next week, or it could be a year from now. I can't predict that with any certainty, however, I can definitely say that there is a considerable amount of uncertainty over these companies right now. I dipped my toe into the water by buying some long dated DR Horton options that are currently worth about 50% less than I paid for them a few months ago (allthough they do not expire for another couple of years, so they might turn out to be a smart purchase yet!) I was definitely early in buying those options, and as Bill Miller put it recently- being early is sometimes the same thing as being wrong.

If you're interested in looking into investing in homebuilders, I recommend you read this article about Bill Miller's early call on buying these stocks.

There are a few good quotes in there, notably:

Investing in an industry or company amid its worst performance in years or
decades can, though not always, prove quite profitable if the performance isn't
measured in days or months, Miller said.

"The headlines today are all about this being the worst housing market
since the early 1990s. Had you bought housing stocks during that previous period
of duress, you would have made many times your money and handily outperformed
the market over the subsequent decade," he said.

Another company I've had my eye on lately is Universal Technical Institute (NYSE:UTI), a small cap company (about $500m market cap) that runs automotive training schools and has a contract with NASCAR. The Motley Fool introduced me to this one. I haven't had a chance to look into it too much, but over the past week or so, the stock has taken a big hit that seems less related to the company's prospects than it does to the overall market decline. It's definitely worth further investigation.

Getting Motivated

I occasionally read http://www.codinghorror.com/ which is a great blog written by programmer Jeff Atwood. I'm not a programmer, but I find a lot of interesting stuff in Jeff's posts. I felt like I had to share this one with you today. Sorry for the foul language, but sometimes this stuff crops up in life.

It is on the subject of motivation. Sometimes I feel a little guilty for neglecting this blog. However, it is usually because im off in the world of finance getting things done, which this post helps me feel a little better about.

I think we've all faced bouts of motivation and laziness in our lifetimes. There are a number of ways to get over them, but Jeff's post talks about probably the most basic one.

I'm going to file this under "increase your income," because if you follow the advice in there, you probably will increase your income in some way.

Investing In Gold Bullion

One way to diversify your portfolio is by purchasing precious metals. I don't recommend putting a ton of your net worth in precious metals, but it can't hurt to buy a few gold coins when the price is right. A few years ago I bought five one-ounce South African Krugerrands with very low expectations. Allthough the five are currently worth somewhere around $3,300, I consider them more a form of "worst-case scenario" insurance, and collector's items than actual investments, which, to borrow from Ben Graham's definition in The Intelligent Investor, I would define as something promising "safety of principal and a satisfactory return."

If there is ever a period of rampant inflation in the United States, or other global market turmoil, the experts generally agree that the value of gold will increase. I can't say I reasonably expect such a thing, but I figured why not, over my lifetime, accumulate some gold coins.

Blanchard, one of the more reputable gold-selling firms, lists six reasons why someone might want to buy gold.

1) As a hedge against inflation
2) As a hedge against a declining dollar
3) As a safe haven in times of geopolitical and financial market instability
4) As a commodity, based on gold's supply and demand fundamentals
5) As a store of value
6) As a portfolio diversifier

Wikipedia also has a decent entry on investing in gold.

There is no shortage of gold discussion on the internet. My advice to you is if you have extra money, why not buy a few coins? At the very least, they would probably make an interesting gift someday.

There are a lot of people on an extreme end of the spectrum who suggest that if doomsday scenarios happen, you'll want to have gold coins because people won't accept worthless US Dollars. This page would be an example of that. I'm not going to say the situations this guy suggest can *never* happen, but I'm not holding my breath until they do.

Anyway, there are many different reasons for owning gold. If you want to buy large quantities, you're going to need to store them somewhere, preferably insured or protected from theft like a bank vault or a safe deposit box. I think this is where you run into a problem because it costs money to rent out a protected vault, so your gold would end up being a cash flow negative investment.

You can also buy shares of gold funds that own physical gold, but I'm not a big fan of buying a piece of paper that says someone else is holding gold for me. just a personal preference.

Just another option for your portfolio. As you can tell, I'm very lukewarm on the subject of gold. I don't think it is a "must-own" for every investor. It probably makes up 1% of my entire invested assets at the moment, and will probably remain at about that percentage. You're fine owning none. Stocks have appreciated much more over time, and some stocks even pay dividends!

If you do decide to buy a few gold coins, remember you are buying a $660 item (at today's prices anyway) that weighs only one oz., a potentially good theft target. I would recommend not telling people that you own gold coins (family and friends). I would also not recommend getting too tricky with your hiding places, because you will lose them, or someone will inadvertently throw them out. You can also (I believe) safely not own any gold coins and save yourself the hassle.