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Saturday, January 13, 2007

Salaries For Finance and Business School Faculty

People often wonder what salaries are for Business School faculty. In fact, Google searches on faculty salaries are a common way people stumble across this blog. So, here's a brief rundown on what the current state of affairs is for finance professors. I don't have nearly as much info on other business school disciplines, but I'll link to a study at the bottom of this post with more info for those who are interested.

The good news for those considering a career as a finance professor is that you'll make more than almost any other academic discipline (nowhere near what someone on Wall Street makes, but still not bad). Every year the AACSB (the b-school accrediting organization) does a survey of business school salaries. In the most recent survey (for academic year 2005-2006), the average salaries by rank were as follows:
Assistant professor - $109,000 ($111,000 for "new hires")
Associate professor - $107,000 ($126,000 for "new hires")
Full professor - $134,000 ($142,000 for "new hires")
New Ph.D. - $113,000

If you're not an academic, a little explanation is probably in order. First, it's important to understand that once a person is hired, they typically don't experience much in the way of raises (usually a couple percent a year at most) if they stay at their current university. This is because universities realize that once tenured, most faculty won't leave (and take another, likely untenured position) for a few thousand dollars more. So, salaries for faculty hired years ago often lag significantly behind those of new hires. In fact, it's not uncommon for new assistant professors to be hired at salaries that are higher higher than those of existing associate or full professors (this is known as "salary inversion").

Also, in what seems paradoxical, new Ph.D. candidates often have better job prospects than those have been out a few years. This is because they have what's commonly referred to as "option value." Research schools (that generally pay higher salaries than teaching-oriented schools) want candidates that will publish in high-quality journals. A new graduate (particularly from a top school) is probably more likely to publish in top journal than is another candidate who's been out for a few years and has already published a few times in lower-tier journals. The reasoning is that the "seasoned" candidate has revealed his type - his publishing in lower-tier journals signals that the'll likely be a consistent publisher, but not at the journals that the better schools want. As an example, for the 2005-2006 year, while new assistant professors averages $111,000 in salary, new Ph.D.s averaged about $2,000 more. If you asume that new Ph.D.s make up half of the new hires, this implies that non-new Ph.D. hires actually averaged about $109,000 (about $4,000 less than new Ph.D.s).

Because of salary stagnation, the only way a finance prof can keep his salary marked to market is to move schools occasionally. Even if a prof decides not to move, having an offer in hand from another school is often a good way to get a counter-offer from their existing dean. In fact, this has happened to several of my friends in the last few years.

Finally, and this is extremely important, there's a LOT of variation across schools, and average salaries can be misleading. Salaries differ significantly between "teaching" and "research" schools. From conversations I've had recently, a "research" school in the upper tier (not the very top of the heap like Harvard or MIT, but still in the top rank) will likely pay $150k-$160k this year for new faculty. In contrast, lower tier research oriented schools will probably pay more in the $125k-$135k range, while teaching oriented schools will pay nearer to the $90K-$105k range.

There are also differences in "summer support" between teaching and research schools. The salaries I've quoted are "nine-month" salaries (although most faculty elect to have their nine-month salaries spread out over 12 months). Research schools typically pay faculty an additional stipend for the first few years (called "summer support") so that they can take the summer months to concentrate on research. This summer stipend is usually in the range of 1/9 to 2/9 of their nine-month salary. In contrast, teaching schools often pay little or no summer research support.

The numbers I've given are for finance faculty. Typically, accounting professors make similar salaries (in fact, this year they might even be a couple thousand above those for finance profs), while management and marketing professors often make 10-20% less.

Once tenured, many faculty do outside consulting (either for companies or as expert witnesses), which can also be pretty lucrative. ut that's a story for another day.

For a little more info on b-school faculties, here's the promised link to the 2005-2006 AACSB salary survey.

Finally, in case you're interested, I've written a series of posts about the field of academic finance:
What's Involved In Getting A Ph.D. In Finance?

What Does A Finance Professor Do All Day? - Part 1 (Teaching)

What Does A Finance Professor Do All Day? - Part 2 (Research)

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