Friday, October 16, 2009

IIM professors earn more from consultancy - The Economic Times

India's bulge-bracket factories are yet to catch up with their global counterparts in terms of faculty remuneration, but corporates queuing up to have a taste of their expertise are making the professors rich, and the institutes richer. Faculty members at some of the top-ranking Indian Institutes of Management (IIMs) earn more from consulting activities than what they get from these famed institutes as salary. While an IIM faculty gets, on an average, around Rs. 800,000 as salary per year, he usually makes Rs. 1.2 million in consulting fees after sharing 45% of that with the institute.

A norm in the West, the faculty consultancy system was kicked off in India by IIM-A with the caveat that the school will take almost half the fee as cut. According to IIM-A officials, consultancy fees that India Inc gives to the IIMs have gone up by 16% from last year. Over the last few years, PepsiCo, L&T, Canara Bank, Godrej & Boyce Manufacturing, VSNL, LIC and Bank of Baroda, among several other corporate houses have approached IIM-A for consulting as well as in-house training. “They usually ask for middle and junior level training programmes for their executives. Some companies even hold their programmes round the year,” a faculty member told ET.

IIM-A has a 90-strong faculty, of which 70% actively participate in activities that fetch them an average Rs. 2 million annually (net consultation income plus net salary). The amount for many active faculty goes up to Rs. 3-3.5 million depending on the number of consulting projects and in-house training programmes undertaken. The institute earned about Rs. 206 million as consulting income in 2008-09, with the percentage growth over the last three years being about 16% per year, institute officials said. However, unlike their counterparts in India, most of the Western B-schools don’t insist on getting a cut from the faculty consulting fees. In Harvard Kennedy School, an institute with a focus on public policy management, a faculty is even allowed to set up his own consulting company and enjoy tax deduction on earnings. “Faculty salaries are already so high in B-schools in the US that a faculty’s consulting earnings hardly exceed his salary. This happens, but only in a few individual cases. In IIM-A, the salary is so low that consulting earnings look big when compared with a faculty’s salaries,” said a senior faculty member.

The institutes allow the faculty take up advisory services for the industry as per their expertise in the field to help them gain insight into the functioning of the company and also generate revenue for the institute. As per provisions made by the institute, a faculty can do a maximum 53 days of consulting, charging Rs. 100,000 for a day’s consulting. On an average, a faculty member contributes 20-25 days in a year to consulting, which fetch him Rs. 1.6 million after sharing the 45% of his revenue with the institute. At a few other Indian B-Schools, the faculty-institute ratio is 70:30. “Among IIMs, the IIM-A gets the maximum volume of consultancy,” said a senior faculty member.

Over the last few years, the per day consulting charge at IIM-A has gone up from Rs. 40,000 to Rs. 100,000. IITs too have set up such a system, but income from technological consulting is way below the norm in management consulting. Faculty salaries assumed prominence after the IITs raised a pay hike demand with the HRD ministry. While the issue has been settled with the premier technology institutes, their management peers chose not to pursue it aggressively. In fact, the IIM-A board of governors decided to adopt the MHRD pay structure.

Another IIM-A faculty pointed out that a pay revision was needed as not all faculty were involved in consulting and allied activities. Also, consulting not being an assured income, it was imperative for the institute to have a higher base salary to attract newer faculty. The IIM salaries are taken as a benchmark by top B-Schools like Symbiosis, Pune and IMT, Ghaziabad while fixing their own pay structure. However, as it turns out, the total earning of a majority of the top IIM faculty remains much above others. ICFAI B-Schools-Ahmedabad (IBSA) Director P Bala Bhaskaran said there is no comparison to the IIMs, when it comes to the consulting incomes. “We pay our faculty members a little above the UGC pay structure, but we also encourage our faculty members to involve themselves with MDPs, consulting and other activities to earn extra money,’’ said Nirma Institute of Management Director C Gopalkrishnan.

Source: The Economic Times (This article is written by Kumar Anand)

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