Friday, April 14, 2006

Are the IIM salaries unsustainable?

Certainly. My argument in this piece published on

Come the month of March, and the nation is gripped in a bewildering frenzy fuelled by the IIMs revealing the highest offers made to their graduate students.

Gaurav Agarwal became somewhat of a national celebrity when it was disclosed that Barclays of London made a record offer of Rs 86 lakh to the IIM Bangalore graduate. Before the dust had settled on this fantastic offer, screaming television headlines informed us that a student at the Indian School of Business (ISB), Hyderabad had lapped up an annual package of over Rs one crore.

The media hyped these salaries to such an extent that Agarwal and another high-flier at IIM-B, Venkatesh Shankararaman drafted a mail to the institute's director, which read as follows:

"Salary details, especially when they are above-normal compensation levels, tend to catch the attention of unscrupulous elements in society and could cause immense physical and psychological distress for those involved. It has also caused a lot of personal problems for us."

Undue embarrassment

One can only speculate on the "personal problems" faced by the students. Insiders feel the real reason is the undue embarrassment faced by international companies.

International companies desist from revealing compensation figures to the public or media. These companies recruit from several B-schools and the compensation packages offered vary. In such a situation, publicising compensation packages is not desirable.

This year, during the placements process, IIM-Ahmedabad clamped down on revealing figures to the media after companies expressed concern about salary statistics being published before the process was complete. IIM-B director Professor Prakash Apte announced that his institute will not give out information about compensation packages from next year.

B-Schools like the Indian School of Business, which follow international practices, do publicise salary figures. What they never divulge is which company offered how much compensation. So what prompts the IIMs to disclose salary figures?

IIM sources say that over the past four or five years, placements and salaries offered have become an interest point for the media and by extension, it becomes an avenue of competition among B-schools. It's not only a means to improve brand equity (which it undoubtedly does), the tantalizingly revealed details are also a road to one-upmanship.

Worth it?

But are the salaries worthy of an education at the IIMs? Salaries have been seeing a steep hike with every passing year. Today, an IIM grad is worth much more than he/ she was just a decade ago.

Granted, the liberalization process has brought Indian corporates in the league of the best in the world, but the question arises: what has suddenly changed for these graduates to command eye-popping prices for their services?

One explanation for the rise is the exactness of the work profile involved. Managers create wealth for their companies by devising complex models for growth and sustenance. Any company would look at recruiting the best because of the belief that only the right CEO can lead a company to prosperity. IIMs, owing to their brand value, score on this account and it is this belief that drives salaries through the roof.

Another reason is the strong demand-supply gap. There is a limited supply of high-performing managers who can truly change a company. When companies come across a few on those high-sounding campuses, they do everything in their might to reserve them, including primarily paying big bucks.

But many feel that such an annual rush in salaries is unsustainable. Several new studies are challenging the assumptions on which executive pay policies are based. They argue that the criteria used to narrow the pool of CEO candidates are arbitrary and create the false impression that talent is scarce.

As company bottomlines surge and fall like the tide on a full moon, so is the corporate paycheck. While the IIMs battle it out on where the buck finally stops, we haven't yet heard the final word on those skyrocketing pay packets.

1 comment:

camelpost said...

IIMB will have a Singapore Shanty 4700 Sqft, 3 hour working day and just one faculty to conduct world class Management Education. I wonder if the above meets so called AICTE specifications. On the contrary ISB which has world class facilities at Hyderabad has been questioned by AICTE about maintaining standards. Its time the AICTE joke is called off. AICTE you stand exposed in your standards.