Harvard Business Review recently published an article titled The Real Reason New MBAs Want to Work for Goldman Sachs. This article walks through the "prestige" factor that name brand firms have and why so many recent grads strive to end up on their payrolls--even for lesser salaries. Thought this would be relevant to MBA students and any young professionals.
"What attracts top talent? Is it great benefits, flexible hours, steep pay packages, or state-of-the-art training? New research suggests it’s something simpler – but more difficult to obtain. Prestige. The researchers found that business school graduates “who had won more awards or graduated with honors took jobs at higher status firms,” supporting their hypothesis that top talent flocks to firms with better reputations. And when they polled current MBA students applying to work at investment banks, “the extent to which firm reputation would help with future employability” was ranked as their most important decision-making factor.
Because of this, high salaries aren’t a competitive advantage, at least at first. “You get the best people, and you don’t have to pay as much as you should early on because they want the stamp of ‘Goldman Sachs,’” Bidwell told me. Employees also want to work with other top talent, which helps when it comes to building strong networks. “When people are thinking about jobs, it isn’t benefits, flex time, or pay,” said Bidwell. “It’s how it will position you for the next step of your career.”
But when Bidwell and his co-authors took a long view of how people choose and then manage their careers over time, a couple of interesting things started to happen. They found that the benefits of working for a high status firm don’t take hold until about five years in. And in general, people at top firms wind up seeing those benefits, via more money or better jobs elsewhere. Indeed, the researchers found that that “an employer whose status is ten units higher (e.g. Goldman Sachs vs. Vanguard) pays about 15 percent more for employees at the VP level.” There’s no significant pay difference for new MBAs — Goldman essentially gets better talent for the same price. “In the early stages of your career, positioning yourself for later is important,” Bidwell says. “Subsequently, it’s not – you’re good, and you want to see the benefits.”
Thoughts monkeys?
- Would you sacrifice pay for prestige?
- Is it surprising to see MBAs taking less pay now for greater positioning later?
Personally for me salary is obviously a nice touch and driving force, but at the end of the day I want to end up at a top b-school and to get there you need "prestigious" or "brand name", for lack of a better word, work experience. However, another HUGE driving force for me is location (65k-70k might be great in a midwest town, but try raising a family on 65k in SF or NYC).
I think those in ibanking/overachievers continually delay pleasure/sanity so that one day they will have all the exit opps, prestige, and ability to do whatever it is they want. As this article points out 5 years out of school you begin to realize what actually matters, and maybe attending an M7, starting in goldman, or working at a HF isn't what you want to be doing when everyone around you is starting families, getting married, etc.
my $0.02
I definitely agree @"ishouldbstudying". I think that the long-term outlook of choosing a more prestigious firm can have lasting benefits to one's career. Whether it be b-shool or future employment opportunities, having a top BB IB on your resume can make a world of difference.
I do agree with your point about salary however. You still need to be making a reasonable wage to continue to live comfortably. If that condition is met, then I think choosing the brand name firm is totally worth the marginal loss in pay.
This has been an ongoing debate on WSO.
I tend to disagree with the statement " the benefits of working for a high status firm don’t take hold until five years in." It's earlier than that.
And here I thought people wanted to work for GS so they could ride the elevator.
I also think that taking lower pay for higher prestige only applies because the pay (at GS vs. other banks, for example) is slightly lower, not world's apart - I find it hard to believe that top MBA students would take a job at GS if it paid 50% of what other banks do, for example. Important to keep in mind lower pay is still high pay
We went on a tangent about this in my econ class, and we agreed part of the benefit of prestige could be the perception of better training of young talent. Another benefit could be from being able to name drop to clients and potential clients that the guy you just recruited is ex-Goldman. Both reasons at least partially explain why ex-Goldman VPs would make more than their peers right? I wish we talked about it more but then the prof got back to his regular lecture...
I agree at a 100%. The evolution of your salary can be exponential; but it not happen the same with the evolution of the prestige of your workplaces.
No one gives a toss about prestige except for your undergrad. Reason you go to GS is so that you can get lifted by somebody else for a lot more money in the market place.
A clear disctinction has to be made. Prestige would apply here for corporate finance roles in M&A, ECM or DCM but I really doubt the same for S&T roles because of regulations, internal structure transformations where support functions skyrocket and such.
it's about more and better pussy, be honest
The over arching theme I see here is prestige can substitute for pay.
Just curious to hear what you guys would do in this situation: Business school full ride at Booth plus 15k a year stipend, or you pay full tuition at HBS or Stanford. Is the prestige factor really enough to forgo the full ride + stipend at chicago?
This is undergraduate but I got a full ride at USC and I went to an Ivy for 1/4 - 1/2 financial aid. I think in your case I would go to Booth though
This is undoubtedly the correct move, assuming you're comfortable in your finances and are pursing IBD positions. Georgetown / Duke versus the Ivy would be a more difficult sell. I also agree that Booth would be the correct call, especially considering how expensive full-time MBA programs are.
Anyone who doesn't pick the first option is insane. If you can't get where you want from Booth then maybe you don't deserve a shot at all.
Interesting you should post this. A friend of mine was in this same dilemma a month ago. Got full rides to other Ivies but chose to go to Harvard where all she got was a loan.
I couldn't do it.
Wouldn't Harvard match the aid given by the other Ivys? My impression was that Harvard matched other Ivys/Stanford/Duke.
It's all about maximizing your utility function. A lot of us pretend to deny it, but there is undoubtedly some enjoyment in telling others that you work for Goldman/KKR/substitute any prestigious firm. The amount of utility that one gains from this will obviously differ from person to person, so the answer is different for everyone. If the utility gained from prestige > utility gained from higher marginal salary, then it makes sense to pick Goldman over a higher paying middle-market.
It is also possible that the PV of working at the more prestigious firm is greater than the PV of working at a less prestigious firm (with an higher starting salary) due to higher cash-flow/better opportunities later in life.
As mentioned in the article, Senior VPs typically make 15% more at GS as compared with firms that are considered to be a slight step down. Would anyone happen to have insight as to how compensation varies in this situation but for analysts?
I think it's all a matter of your time horizon and where you choose to extract the most utility out of your life. For many of here on WSO, we are long term career focused ppl that make long term career plans. I know the buzz words "long term greedy" gets thrown around a lot but that's exactly what most of us believe. Yes you might be short changed selling top talent to a more prestigious firm at a relative discount but the person who choose to do that knows they will benefit more later on in life. The employer knows this too hence they can exploit that a little. They are smart ppl that understands simple labor economics.
What is the average scolarship loan for a tier 1 university ?
I am not sure. I might agree with the prestige premise and pay full price to attend the big H.
People only rely upon prestige when they can't come up with any better differentiating factors, which is probably why the undergrads on this site are so preoccupied with it.
I think people take the option that results in most utility over a long term career. For instance, those working at BBs in a non-IBD role or analysts at F500, big 4 accounting guys, etc. often get offers from recruiters to work at a smaller audit shop, CF outside of f500, credit roles at a smaller bank all for more money (say 20% pay bump over your all in pay 2 years out of school), id say most would turn these options down early on in their career because they will get a one time pay bump but then forego better exits down the road if they stay at their BB (or firm with comparable prestige) for less pay short term but better long term opportunities. Same thing, I doubt anyone would pick say Citi IBD if it paid 20-30% more than Goldman year 1.
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