Academic journal article Journal of Managerial Issues

The Advantages of High-Prestige MBA Degrees and Placement Centers for Compensation Growth of African Americans

Academic journal article Journal of Managerial Issues

The Advantages of High-Prestige MBA Degrees and Placement Centers for Compensation Growth of African Americans

Article excerpt

In an era of rapidly rising tuition, increasing student-loan debt, and proliferating alternative delivery models, questions are being raised about the value of traditional university education (Khurana, 2010) and the value of the MBA in particular (Pfeffer and Fong, 2002; Mintzberg, 2004; Datar et al., 2010). Moreover, funds garnered through tuition increases are improving neither faculty pay nor professor-to-student ratios, but rather are being invested in a dramatic increase in administrative programs and personnel (Holtom and Porter, 2013). This raises the question of whether these investments are delivering tangible results. One such result would be an increase in opportunities for growth and advancement for minorities. The present research falls at the nexus of these broader issues.

The purpose of this research is to explore race differences in the compensation growth of white and black GMAT-exam registrants as a function of whether they completed an MBA, whether the MBA was from a Top 25 program, and whether they used placement-center services in their MBA program.

In the following pages, the literature on career development and salary growth as well as the literature regarding formal and informal recruitment sources is reviewed. Grounded in these literatures, hypotheses are advanced. Next, a large-scale, longitudinal study is used to carefully examine the effects for whites and blacks of earning a high-prestige MBA and using MBA placement centers. Finally, practical implications of the findings are discussed.

THEORETICAL DEVELOPMENT

Gaining a greater understanding of the predictors underlying economic success of racial minorities in the U.S is important. The presence of racial minorities in professional and managerial positions is growing (U.S. Bureau of Labor Statistics, 2012), and some people have taken this progress as evidence that explicit racial barriers have been removed (Rosette et al., 2008). Although predictors of career success such as income have garnered considerable attention over the past twenty years and numerous models have been proposed (see Ng et al., 2005), few studies have directly investigated the existence of racial differences in the determinants of compensation growth for diverse professionals.

High-Prestige MBA and Compensation Growth

There are two complementary perspectives regarding how the investment in an MBA might increase compensation for recipients generally and minorities in particular. The first is human capital theory and the second is signaling theory.

Researchers define human capital as the stock of competencies, knowledge, social and personality attributes, and cognitive abilities that enable individuals to perform labor that produces economic value. Investments in human capital such as education that expand knowledge or skills have been demonstrated to enhance an individual's earning power (Judge et al., 1995). An underlying assumption of most work examining human capital is that the predictors of economic success are the same for all professionals (Becker, 1975). However, while many investigate gender differences in pay (Goldberg et al., 2004; Blau and Kahn, 2007), few have directly investigated the existence of racial differences in the determinants of compensation growth for professionals possessing advanced degrees in management.

Managerial and professional work is characterized as a collection of nonprogrammable tasks. Thus, predicting who will be successful is difficult. This is in part true because in the context of the principal-agent relationship, an individual (the agent) possesses more knowledge about her capabilities than the principal (the organization), leading to information asymmetry (Eisenhardt, 1988). Under these conditions, an organization may either be unwilling to hire the individual because of the uncertainty surrounding performance potential or will offer a lower starting compensation. …

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