Silicon Valley technology companies are tempting MBA graduates away from financial services and consulting with higher compensation, with many boosting total pay with stock options.
Bay Area stalwarts such as Google, Apple, and Uber are increasingly luring top business school talent away from banking and finance — traditionally the dominant hiring sectors for MBAs.
They have been able to do so by offering a better work-life balance, and, increasingly, fat wages. Compensation at tech businesses and particularly at fledgling start-ups often includes a piece of the company.
“At least one major tech firm includes stock as part of the pay package that vests over a number of years,” said Eric Young at Georgetown’s McDonough School of Business.
Some 37% of graduates of California’s Stanford GSB, which has close links to the Valley, reported this year receiving stock options with a median value of $250,000. Microsoft, Cisco Systems, Oracle, and Gilead Sciences have all used stock options.
A recent report from Deloitte said that high-technology companies are throwing benefits at employees to see which ones stick — stock options “are common”.
Cash remuneration from tech companies has converged with that offered in banking and finance, according to employers reporting to Quacquarelli Symonds (QS), an education and research firm.
Michael Goul, chair of the Information Systems Department at W. P. Carey School of Business, said simply: “Salaries remain strong.”
However Paula Quinton-Jones, director for career services at London’s Hult International Business School, said that salaries in tech are “on a par with the MBA average”.
She added that the draw of tech companies is more to do with the fact that they are spurring mass industry change and innovating with new products.
“There is a dynamism that is not necessarily seen in other sectors,” she said.
Since the crisis, investment banks have culled recruitment schemes that once hired more aggressively from the top business schools. Data from finance analytics firm Coalition released this week show that front-office headcount at the banks continued to fall this year, having plunged by nearly 10% since 2010.
Christian Dummett, head of finance careers at London Business School, said: “A small number of high-profile tech companies have been growing their MBA-level hiring rapidly.”
Google, Hewlett-Packard, and Cisco hire hundreds of students from schools including Harvard, Kellogg, Wharton and Haas. Uber too is placing its foot on the accelerator. “We're working closely with them to identify tech-savvy, business–ready students,” said Robyn Gleeson, director of the career development centre at Sydney’s AGSM.
Chris Weber, associate director for careers at UCLA Anderson School of Management, said that compared to banks, tech companies provide similar pay and perks.
“In the coming years consulting firms, as well as investment banks, may be competing with leading tech companies for top talent, even more so than they do now.”
Employers like stock options because they offer a way to compensate employees without a charge to their bottom line, particularly attractive to cash-conscious start-up companies.
It may also help improve employee retention and reduce churn by incentivizing employees for the long-term — most stock options have an exercise period of 10 years.
However tech firms face stiff competition from both banks and consultancy firms, which experts say have been raising salaries to recruit. Credit Suisse and Deutsche Bank have both recently reviewed junior bankers’ pay, following moves by others such as BofA Merrill Lynch to hike salaries.
In consulting too, “it’s definitely the case that this is an area where there is a good opportunity for students to earn some serious money”, said Stephen Pidgeon at Tuck School of Business. “We have been seeing strong growth in salary upon graduation,” he added.
The National Center for Employee Ownership estimates that employees covered by stock option plans receive an amount equal to between 12% and 20% of salary. Stock options infamously made millionaires of hundreds of early Google employees.
However, during times of stock market volatility, companies can reprice their options, by cancelling the first option grant and issue new options at a lower market price. Given the recent stock market routs, this doesn’t bode well for employees lured by Silicon Valley’s riches.
Stanford professor David Larcker and Wharton’s Richard Lambert found in a study that 39% of employees knew “little” or “nothing” about their stock options. That will surely not be the case among the world’s future business leaders.