MBA students work on several case studies while pursuing their programmes from reputed business schools. They analyse the strategies developed by various businesses, evaluate the costs related to launching new products in the market and discover unique ways to reduce expenditure. But even after receiving all this training, MBA graduates are still unable to stop the constant rise in CEO pay. In fact the case may be completely opposite. Is the growing volume of MBA grads further increasing the apparent value of a CEO? Let’s find out....
Growth Of MBA And Rising CEO Pay
The MBA degree has gained immense popularity among students and employers over the past decade and I think its remarkable growth somehow matches the rise in executive pay. Recent studies show that MBA students from the 2011-2012 class comprised only 25 per cent of the total master’s degrees awarded with around 191,571 students earning the qualification. Now more and more students are pursuing MBA due to its growing demand in the business world. Actually the amount of MBA degrees handed out since 1970 has leaped by 623 per cent; whereas master’s degrees in education jumped only 103 per cent during the same period. However, the rise in CEO pay took some more time as it started the exponential growth after the 1990s, as per statistics available from the Economic Policy Institute.
With more MBA graduates roaming around in the corporate sphere, increasing number of CEOs and corporate board members now have the qualification added in their CVs. Now organisations want to recruit the most skilled candidates and I assume that the best ones will be able to take the tough decisions, make the right choices and will be focussed on how they can help the business grow as MBA students are trained about these during their B-school days.
Most Executives Have MBA Degrees
It was observed that in any given year there are around 40 per cent S&P 500 CEOs who possess an MBA degree. There is no doubt that this degree by far the most prevalent qualification among these executives. It was also found that among the S&P 500 CEOs, around 30 per cent had earned some kind of an advanced degree such as law degree or a PhD.
According to Spencer Stuart, an executive search company, about 61 per cent of all new directors are either retired or active CEOs, presidents or chairs. Moreover, 20 per cent were CFOs, investors or bankers and 13 per cent were retired or current executives. So I guess we can presume that a majority of these executives have earned an MBA or other similar advanced qualifications.
Need For Diversity In The Boardroom
This similarity among board members and executives in major organisations creates doubts regarding diversity. When most of the business leaders have similar academic backgrounds, there will be a limited range of opinions about corporate strategy and executive pay.
Although there is no too much research done on the influence of MBAs in the boardroom, some studies show that a dearth of diversity may affect an organisation. In a recent study it was observed that there is a strong relation between the willingness to take risks and board diversity. Ya Wen Yang, co-author of the study and Assistant Professor of Accounting at the Wake Forest University School of Business, said “We found that the more diverse the board, the less likely [a company is willing] to take risk. If you want to curb excessive risk taking, then add diversity to the board.”
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