There are a number of interesting correlations between education in private equity and venture capital compensation. In our report, we primarily looked at the value that an MBA brings to those in the industry, and whether they experience increased earnings compared to their peers. While we found some interesting trends worth consideration, it’s important to note that this may not tell the whole story when it comes to the value of an MBA in the private equity and venture capital industries.
In 2012 we did note that those with an MBA do on average earn more than their lesser educated peers. In fact, when it came to base salaries, those with the advanced degree earned approximately 12 percent more than peers without the degree. Vacation entitlements, generally three and a half weeks, were largely the same regardless of education level, which likely reflects standardization at most firms.
This doesn’t mean, however, that an MBA is a worthwhile investment for all of those looking to undertake the program in order to get a leg up in the private equity industry. There is a substantial cost to pursuing an MBA. The top tier schools that provide the highest boosts in annual earnings aren’t cheap, and a degree can run an individual over $200,000 when all costs are factored in. When discounting the small advantage in higher salary received by MBAs over their career, serious doubts exist about whether the degree pays for itself.
Further, we found that when it came to bonus payouts, education wasn’t such an advantage. In fact, those with MBAs generally earned a smaller bonus, albeit higher total compensation, than their peers. This relates back to the structure of bonuses being driven primarily by tangible results either individually or as a firm. While an MBA can certainly add value, there is no guarantee that will translate into improvements in any given metric a firm uses to tabulate bonus pay. And as a result of these lower bonuses, the total compensation advantage for those with an MBA was only about 4 percent last year.
That said, some of the value of an MBA can’t be measured in dollars. Those with the degree have vast networks established while in these programs, providing them access to more opportunities than those without time spent in the halls of the elite business schools. For some, this could mean the difference between employment and unemployment during tough times. As a result, there are a large number of individuals that still see a great deal of value in the degree, and we certainly wouldn’t disagree.
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