It pays to be discerning about salary increases

It pays to be discerning when interpreting the vast increases in reported statistics concerning pre-and post-MBA salaries.

The reported increases, published by the UK-based Financial Times each year as part of its business school ranking data, are driven by purchasing power parity, industry choice and personal work experience, and there are some issues to be aware of around the way the surveys are actually put together.

The first of these is the use of purchasing power parity (PPP) to convert different currency rates and compare salaries between countries. PPP is the exchange rate that equates the price of a basket of identical traded goods and services in two countries.

This is one of the reasons we've seen Chinese schools showing enormous pre-and post-MBA salary increases of between 100% to 200%.

It's interesting but it doesn't necessarily indicate what's happening with those students because often their pre-MBA salary was earned in an area where the cost of living is quite low, for example a rural area, and their post-MBA salary has been earned in an expatriate company, still in China, but in a city like Shanghai or Beijing where the cost of living is much higher.

In the past the way that PPPs were calculated tended to advantage schools in China, with some jumping to very high rankings. But newer PPP calculations are likely to see that trend reverse. This means Chinese business schools should reflect a different salary increase ranking next time.

Another reason for massive salary increases has to do with taking people who have raw talent and skills and placing them straight into the financial industry after graduation.

Places like Wharton and New York University are traditional feeder programs sending MBA graduates to Wall Street.

The finance industry is no longer hiring as many graduates nor are salaries at the same kinds of levels as they were in the past in this economic climate, so some of those increases will be much less visible in the next rankings as well.

The third factor that affects salary increases, concerns the amount of work experience people have when they start their MBA.

There's an optimal window of time to get the absolute maximum salary increase out of an MBA and it tends to be relatively early in an MBA graduate's career. It's not necessarily when an MBA graduate learns the most but it is the time when an MBA graduate enjoys the biggest salary bump.

The current statistics reveal that executive MBA programs- which traditionally admit people at considerably more senior levels - have much lower salary increases, even if you compare them against other MBA programs at the same university.

This is because once a person has been working for eight to ten years, and been identified as a future leader, they'll probably already be on a good salary. The Executive MBA will help their career, it will probably even deliver the same dollar increase in salaries to graduates, but it won't show the huge percentage salary increase that less experienced MBA graduates see earlier in their careers.

This doesn't mean that it's a bad idea to undertake an MBA, it just means that at different levels people have different outcomes and expectations about their post MBA salaries. In fact, the return on investment of an MBA is about the difference in salary (in dollars) that an MBA graduate can expect to get for the investment (in dollars) they have made in their education.

This also partly explains why salary increases across countries look different. Each country tends to have a different expectation about when people should do an MBA and so percentage salary increases are correspondingly different.

In Australia and Europe, for example, the average work experience before starting an MBA, is between 8 to 10 years. In the US, it's more common to do an MBA with only about 5 years of experience and in India it's only one or two years.

These vast differences typically mean that schools from those countries that admit students with high levels of work experience will have lower post-MBA salary increases.

One final point. Be careful not to view the salary increase that's reported by the school as applicable to everyone. Some people who bump up those averages are on a specific career route that's not for everyone.

For example, some students plan to go straight from their MBA into a high paid, high stress, consulting or finance job, where they plan to stay for maybe two to four years, before moving onto something else.

This scenario gives the business school an immediate extremely high salary hit, but it's a young person's game and not a career path that every student wants. Sensible schools and wise students value the diversity of career options that are available in the world and make sure the fit between an organisation and a student is the right one. That is the best way to produce leaders of business, governments and other organisations who are passionate and committed.