The Most Lucrative MBA Career Consultants versus small-business owners.

The Most Lucrative MBA Career
Consultants versus small-business owners.

For more, read “Which MBAs Make More: Consultants or Small-Business Owners?”

MALTAway offers a MASTER BUSINESS ADMINISTRATION (MBA)  with 2 different programmes and time commitment and dedication…low cost, high return 

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Compensation is, of course, more than money. It includes other aspects such as: how much you enjoy your career, whether it provides fulfillment, how much flexibility you get and how much influence you have over what you do and when you do it.

In our work studying entrepreneurship-through-acquisition (EtA) — in which individuals purchase an existing small business to own and run themselves — we’ve found that most graduating MBA students agree that being the CEO of a small firm dominates traditional post-MBA careers like consulting, investment banking, private equity, and the like on these non-pecuniary dimensions. Owners of small businesses can set their own hours, make their own management decisions, and take pride in the ownership of their work.

Also, as we explained in an earlier article, we believe that being an established CEO of a small firm involves much less angst than being a senior member of a consulting, investment banking, or private equity firm.

So, the remaining question about being a small firm CEO is the monetary reward; if the money is nearly the same, then the compensation as a small business CEO dominates other careers.

To ground our analysis, let’s assume that the alternative to being a small firm CEO is to follow a traditional post-MBA career and recognize that, at best, we can only compare expected paths because everyone’s experience will be different. So, we begin by assuming that the traditional path offers cash compensation equal to the average starting salary. (It might be tempting to turn to the highest starting salary paid, which typically goes to the graduate with the most experience in the most competitive market, who often earns crazy money their first year. But these are rare occurrences, and we believe that using the average yields a more accurate outcome.)

That average is actually hard to nail down, however. Some large sample surveys report that MBAs nationwide have an average starting salary of about $100K. Graduates from so-called elite schools make more, with some estimates of elite school average starting salaries in the $150K range.  The relative compensation of a traditional career and entrepreneurship through acquisition hinges on salaries in the next 10 years and the carry from deals with investors who provided money to acquire the business. These are of course unknown and highly dependent on the job and the success of the small business itself.  But here is a sketch based on the information we have at hand.

We’ll assume the salary in a traditional post-MBA job grows at a 12% compound annual growth rate (CAGR) so that it more than triples in the first 10 years, which is in line with post-MBA salary surveys we’ve done here at the Harvard Business School.  We’ll also assume the cash compensation for a new CEO of a small business starts off at the average post-MBA salary, and its growth is generally tied to the performance of the company — both of which are typical from our experience as board members of these types of companies.  Because we generally argue that those searching for a small business to buy should target slow-growing dull businesses, we’ve put this at 5% per year.  The chart below shows that over the first 10 years of employment, the cash compensation from the traditional job dominates.

 

But the annual cash compensation only provides part of the pecuniary payoffs of the purchase of a small business because the entrepreneur also has a significant ownership interest in the company.  The size of that ownership interest varies on how they structured their funding throughout the process, but for now let’s assume the entrepreneur has a 20% carried interest in the acquired company. (That means that the CEO keeps 20% of any cash distribution after the investors’ investment is returned and they are paid a preferred dividend.)  The value of that carried interest, of course, depends on the performance of the business, its size, amount of debt used to finance the acquisition and the eventual pricing of a subsequent sale.

To make the analysis tractable, we’ll make some simplifying conservative assumptions: we’ll assume no growth in the business and, because there is no growth, we’ll assume that the selling multiple exactly equals the purchase multiple. We’ll also assume the entrepreneur acquired a $1.5 million EBITDA company for 4x paying $6 million and using 50% debt financing.

To keep things simple, we’ll take advantage of our assumptions of no growth and a constant multiple and ignore the actual timing of the cash flows. That means that, in this example, the purchase price and the eventual selling price will be the same so that the debt and the equity investment can be assumed to be repaid at the sale. This leaves us only with the cash flows that occur between the purchase and the eventual sale.

In this example, the annual cash flow is $1.5 million; the debt is half of the purchase price, or $3 million; and the interest on that debt (assuming a 5% interest rate) is $150,000 annually. This leaves $1,350,000 to be split 80%/20% between the investors and the CEO. The CEO’s implicit annual cash flow from the carried interest is therefore 20% of $1,350,000, or $270,000.

Add this to the cash salary and the entrepreneurship through acquisition path dominates the traditional post-MBA career path, as shown in the chart below.

 

What happens if we take into account the timing of the cash flows? The usual timing of cash flows is that the debt gets repaid first, then the equity investors get their investment plus preferred return second, next the entrepreneur gets paid 20% of the preferred return, and lastly, the remaining cash flows are split 80% for the investor and 20% for the CEO.  The bank and investors get paid off before the CEO gets any cash for the carried interest. But the advantage to the traditional path in the early years is very much offset by the impressive EtA cash flows that occur once the carry starts getting paid and even more so upon exit (which we’ve assumed in year 10 in this example).  Here is the revised comparison:

maltaway malta mba

Analytical readers may think this is a great opportunity to compute the present values of the two paths, perhaps using different discount rates the reflect the perceived risks of the two paths (the present values are close at 15% for the traditional path and 25% for the EtA path) in hopes of determining which path offers the highest compensation. (We recognize that some believe that the EtA path is more risky and thus would assign a higher discount rate. We are not so sure of that.) We don’t advise that approach. Instead, we think you should recognize that there are a lot of differences that we haven’t fully modelled. On one side of the coin, there are likely tax advantages from the EtA payouts and increases from growing the acquired business. On the traditional path side of the coin, there might be pensions or bonuses that we’ve not captured.

Overall, we think that this financial analysis shouldn’t be used to show that one path dominates another. To us, it shows that the compensation is reasonably similar across the two paths; certainly individual variations in experiences will dominate any systematic differences. With money out of the calculus, and the general assessment from MBA graduates that the non-pecuniary aspects of being a small business CEO dominate those of more traditional careers, we imagine that more graduating MBA students will choose the EtA path.

Of course, being a small firm CEO doesn’t appeal to everyone so the decision turns, as we think it should, on whether you appreciate and will thrive in a small business environment.

 

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C Suite, worthy or effective ?

C Suite, worthy or effective ?

balatti board member compensation time result

MALTAway is your way to Corporate & Assets Governance

A corporate co-worker friend used to complain about the dirty looks he got sitting in his office reading The Wall Street Journal. As the corporate media relations manager, he was charged with the responsibility of knowing current industry trends, responding to business publicity developments and personally handling stockholder relations. That duty required keeping up to date on financial news so he could respond appropriately with his subsequent communications; but he appeared “lazy” to others. They judged without full knowledge, letting an impression based on false premises bias their assessments.

Passersby disapproved of his apparent neglect ofImportant Business (whatever that means). Many suit-wearing people found in stiff-necked corporate headquarters seem to jump to conclusions based on quick superficial judgments. After all, anyone with an office in the C suite must be focused, intense and harried … right? Well, such self-important executives certainly expect their peers to be seen acting a certain way in order to be deemed worthy. It is not enough to be effective; you must also LOOK busy.

Arriving early and leaving late in order to be witnessed “working” on site might be passé in this era of remote access and virtual office relationships, but the old attitudes about appearances trumping reality still linger in many organizations … and are increasingly reflected in labor laws. As discussed before, American employers face increased pressures to substitute the superficial external accidents (in metaphysical terms) of work for the fundamental essential necessities that create economic justifications for compensation.

Government prefers that wages should be decoupled from productivity output and based on process inputs like time instead. That kind of thinking can usually be ignored when it is merely theoretical (unless you are deeply immersed in transactional communication or philosophical debates). But when the context is a rule controlling the compensation element of human resource management, it demands our close attention.

What counts for worker compensation is an important question. Modern management theory has emphasized results produced, but the American regulations governing worker payments require (with limited exceptions) that remuneration be rationed by time spent rather than related to the production generated from that work time. Business values work results; government insists pay be based on time spent working. When regulators order employers to ignore results in favor of measuring methods, it creates a dramatic dissonance in occupational job evaluation priorities – and perhaps even in worker behaviors.

This resonates in certain cultures where compensation is based on behaviors rather than on objective productivity. In some societies:
· how something is done is more important than what is accomplished;
· external trappings outweigh essential elements;
· academic theory displaces practical experience;
· style takes priority over substance;
· and appearance trumps reality.

Those are not the principles found in the reward programs that have successfully created the major economies of the world. Cultures that place primacy on input methods over output results tend to flounder and struggle in their futile attempts at prosperity. Similarly, enterprises that value worker inputs more than outputs find it difficult to survive. Managers who routinely confront these issues understand what is at stake. Evaluation concepts are relevant to business decisions like what skills are needed for mission accomplishment, how individual employee performance is evaluated for adequacy and what is required for correction/improvement.

Take a moment to consider what we value, because it is not always what we pay for. Have we lost sight of where we want to go? Can we find our direction any more?

http://www.compensationcafe.com/2016/05/superficials-over-essentials-compensation-and-metaphysics.html

Are they Overpaying the New CEO (MSFT)? As a shareholder do you approve the scheme?

Compared To Apple And Yahoo, Are they Overpaying the New CEO (MSFT)? 
With Nadella, Microsoft has crafted a brand new pay-for-performance model.

Investor watchdog organization Institutional Shareholder Services (ISS) caused a stir last week by telling Microsoft investors that Satya Nadella’s pay package was too high.

Nadella was granted a starter kit of stock valued at about $65 million which won’t begin to vest until 2019. Plus, he got another one-time stock grant worth $13.5 million in August 2013 to keep him around during the CEO search process. It vests over seven years.

In 2014, his base salary is $918,917 for a role he assumed in February. (ISS calculates his full year base at $1.2 million) and a cash bonus of $3.6 million.

So Nadella will be eligible for an annual $13.2 million stock award, with a complicated vesting schedule, that he’ll unlock if he hits certain performance targets.

“Over 80% of the reward opportunity is performance-based measured by our total shareholder return (“TSR”) relative to the S&P 500. To earn the target value of this award, Microsoft’s TSR must exceed the 60th percentile of the S&P 500 over each of three overlapping five-year performance periods that extend to 2021

By the way, Microsoft also agreed to a $17.4 million golden parachute.

 

  • Oracle is paying its new co-CEOs Safra Catz and Mark Hurd $37.7 million apiece for their first year. That was a pay cut from $44 million the year before. (Larry Ellison is making $67 million in 2014).
  • Tim Cook was granted a staggering $378 million one-time stock grant when he took over as CEO, which has vastly grown in value. Between a $4 million salary and about $70 million of his stock options that vested, he made $74 million in 2013.
  • Marissa Mayer was paid $36.6 million her first year as the CEO of Yahoo.

http://www.businessinsider.com/we-are-not-overpaying-satya-nadella-2014-11

The Highest-Paying Programming Languages You Should Learn, Ranked By Salary

Based on that data, here are programming languages listed next to their average annual salary from lowest to highest:

12. PERL – $82,513

11. SQL – $85,511

10. Visual Basic – $85,962

9. C# – $89,074

8. R- $90,055

7. C – 90,134

6. JavaScript – $91,461

5. C++ – $93,502

4. JAVA – $94,908

3. Python – $100,717

2. Objective C – $108,225

1. Ruby on Rails – $109,460

While some of these coding languages can help you earn $100,000, train to become a Salesforce architect if you want one of the highest-paying jobs in tech and you can earn between $180,000 and $200,000.

http://www.businessinsider.com/best-tech-skills-resume-ranked-salary-2014-11

The 10 Highest-Paying Jobs For Math Geeks

Are you good with numbers, data, or spreadsheets? Don’t be afraid to show off your skills — as it turns out, being a “math geek” is quite lucrative. 

New data from PayScale reports that the median salary for math majors is $70,900 — compared to a median salary of $58,600 for all college grads. Some professions, such as data scientists and quantitative analysts, are even higher, with median salaries upwards of $100,000.

http://www.businessinsider.com/highest-paying-jobs-for-math-geeks-2014-11

Highest Paying Jobs for Math Geeks

Tech Pay Hits A New Record: This Is What Software Engineers Earn BEFORE Their Bonuses

The average base salary of a software engineer in the US is getting closer to $100,000. This year, the average is $97,098, up just a few dollars from the year before.

European engineers, however, earn a lot less. But they did get a big boost in base pay this year: Salaries in Europe average €43,536 ($55,329) before bonuses are paid, up 9% from €39,498 ($50,198) in 2013.

http://www.businessinsider.com/tech-salaries-have-hit-a-new-record-2014-10

Glassdoor tech salaries comparison nologo

The golden rules for a compensation system that strikes the fine balance between a startup’s needs and keeping employees happy.

The golden rules for a compensation system that strikes the fine balance between a startup’s needs and keeping employees happy.

“You can’t be transparent if you’re not paying fair, and if you are, there’s no reason to not be transparent.”

“Most startups overpay for talent because they undervalue their own equity — so the candidate will too,”

“You should not lose candidates because another startup at a similar stage is paying them more cash.”

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1) No one is ever happy with compensation, and compensation has never made anyone happy

2) People always find out what everyone else is making.

3) Create a system that revisits compensation only 1-2x a year.

4) On the spectrum between formulaic and discretionary compensation, be as formulaic as you can.

http://firstround.com/article/A-Counterintuitive-System-for-Startup-Compensation

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