IT Professionals: Forget Experience, Get an MBA
Information technology firms pay premium to executives who have an MBA degree.
ANN ARBOR, Mich.—Experience in the world of information technology pays off, but having a master's degree in business earns an even fatter paycheck for IT professionals, according to a new study at the University of Michigan business school.
IT executives with MBA degrees command higher salaries than their peers with comparable years of on-the-job IT experience, the study shows. Overall, compared to firms in other U.S. industries, IT companies pay a significant premium to attract and retain these highly prized professionals.
"While both technical and managerial competencies are important in their own right for a successful performance in IT jobs, over time the relative importance of managerial competencies has increased significantly," said M.S. Krishnan, professor of business information technology at U-M's Stephen M. Ross School of Business. "Ever-increasing competitive intensity is fueling the demand for executives with a good grounding in managerial competencies for applying technology in a given business context."
In their study, Krishnan and Ross School colleague Sunil Mithas examined total annual compensation for more than 55,000 IT professionals, including senior and middle-level executives, in the United States for the period 1999-2002. The data was taken from national surveys conducted by Information Week, a leading IT publication.
Their findings show that the labor market values IT professionals with an MBA degree much more than IT professionals without an MBA. Two extra years of IT experience yields a salary advantage of 2.8 percent (1.4 percent annually), but a two-year MBA degree provides a salary advantage nearly three times greater—8.2 percent.
"Even though we did not factor the direct costs of getting an MBA, such as tuition and other expenses, into our calculations, the substantial difference in returns on an MBA degree vis-à-vis two extra years of IT experience provides a favorable assessment of the benefits of having an MBA degree," Krishnan said.
IT professionals with a doctorate earn more than those with an MBA or other master's degree, providing more evidence in support of returns to education, the researchers say. In contrast to IT experience, job tenure does not seem to affect compensation, perhaps because companies have not aligned their compensation and IT strategies or because they place a low value on firm-specific IT skills, they say.
Across industries, Krishnan and Mithas found that IT firms pay 9.4 percent higher wages than non-IT companies, while dot-com firms pay 9.6 percent more to their employees compared to traditional brick-and-mortar companies. Their findings also indicate that female IT professionals earn about 7.8 percent less than men even after age, job level, education, work experience and other factors are considered.
"There is a need for senior managers to take a critical look at their human resource policies and to assess the reasons for such wage inequalities," Krishnan said. "Left unchecked, these inequalities not only vitiate the workplace environment but also expose corporations to avoidable lawsuits, bad publicity and punitive damages.
"While our study does not establish that wage differentials among male and female IT professionals are on account of systematic gender discrimination by employers, persistent gaps in salaries attributable to gender should serve as a wake-up call for understanding the determinants of the salary gulf between males and females."
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