Graduates of elite universities get paid more. But do they perform better?

A degree from an elite university often attracts the attention of recruiters. Photo / Getty Images

A busy human-resources manager is reviewing stacks of applications for a position that just opened in the company. She knows that many factors determine employee performance: experience, training, interpersonal skills, personality, IQ, emotional intelligence and work ethic. But after reviewing hundreds of résumés, the details on each applicant blur together. And so the HR manager does what many employers do: defaults to selecting hires based on the prestige and rank of the universities from which applicants graduated.

Presumably, better schools attract better students and provide better training, so it makes sense to use the university rank as a predictor of employee performance. This, after all, is why employers offer higher starting salaries to hires selected from prestigious schools. But is it a good hiring strategy? Do university rankings predict job performance? Our research suggests yes — but only to a degree.

In a recent study, we tested the relationship between university rank and performance of graduates. We tracked the performance of 28,339 students in 79 countries. The students came from 294 universities that ranked from the top 10 to about top 20,000 in the Webometrics global university rankings that rank over 30,000 universities worldwide. We observed the students' performance for two months as they were working in global virtual teams on real-life business-consulting projects for corporate clients.

Our results offer some solace to traditional recruiters. After controlling for age, gender and the year of study, we found that graduates from higher-ranked universities performed better, but only nominally and only on some dimensions of performance. Specifically, the overall performance improved by only 1.9 per cent for every 1,000 positions in the Webometrics global university rankings. When comparing the performance of candidates whose universities rank further apart — a graduate from a top university versus a "global average" university — the performance differential jumps to 19 per cent.

The 19 per cent difference in performance between the top and the average seems significant, but keep in mind that this is for graduates from universities that are 10,000 university-ranking positions apart. At a given organisation, candidates are likely to be selected from within a much narrower pool, perhaps from universities whose rankings differ by a couple of hundred positions.

We found several reasons why graduates from top universities performed somewhat better than those from the lower-ranked schools. The first was selection: Higher-ranked universities usually can choose from a larger pool of applicants, which leads to steeper competition and a higher quality of the incoming class. Corroborating the selectivity hypothesis, our data demonstrated that students at higher-ranked universities indeed score higher on general cognitive-ability tests, have more international experience, better English proficiency and higher cultural intelligence. However, competitive selection suggests that these competencies may have been attained earlier in their education.

Second, higher-ranked universities should provide better training. Top universities employ better instructors, offer access to better-equipped facilities, attract better speakers and guests to campus, which in turn should lead to better training and subsequent performance. Indeed, our data suggest that students at higher-ranked universities score higher on competencies that could be attributed to better training, such as superior technical and business writing skills; are more knowledgeable in subjects related to the business project; and score higher on team leadership and coordination.

Applicants to elite universities face tough competition. Photo / Getty Images

Finally, while it might be expected that higher-ranked institutions might provide a more stimulating academic environment, we did not document that this had an effect on graduates' work performance. Graduates from lower-ranked universities showed an equal level of motivation and work ethics, so this could be more affected by personality and other individual factors.

Despite their slightly better overall performance, hiring graduates from higher-ranked institutions could have a downside. Our data suggest that these graduates might damage team dynamics, sometimes inadvertently. We found that these graduates from higher-ranked universities tend to excessively focus on the instrumental tasks, often at the expense of paying insufficient attention to interpersonal relationships. In some instances, graduates from top universities tend to be less friendly, are more prone to conflict and are less likely to identify with their team.

Numerous studies have shown that interpersonal relationships at work play a critical role in employee motivation, job satisfaction and, ultimately, performance and career success. As good interpersonal relationships are critical for organizational success, lacking collegiality and a propensity toward conflict could present adverse effects not only on personal performance, but also team and work group efficacy, possibly leading to an overall net loss.

Notably, graduates from high-ranking universities tend to share a common identity and could see themselves as different from their team members from a lower-ranking university, and this social categorization can lead to us-versus-them dynamics. As a result, graduates from top universities could be perceived by their co-workers with less impressive academic pedigrees as arrogant and snobby. Our data did not confirm that this was the case. In fact, students from more prestigious universities tended to be more modest in their self-evaluations than some of their peers from lower-ranked institutions.

While job candidates from more prestigious universities may slightly outperform their peers, data from Payscale and the U.S. Department of Education show that they are also more expensive to hire. For example, the average early-career salaries of graduates from the top 10 colleges ($72,160) in the United States are 47 per cent higher than those with degrees from the 10 colleges within the City University New York school system ($48,960), many of which are ranked within the top 100. At the six-year mark, that gap jumps to 108 per cent.

Is the extra cost worth the investment? To answer this question, employers need to consider the worth of the increase in performance for the firm. Employers can get a much better deal by hiring the "right" students from lower-ranked institutions rather than "anyone" from better-ranked institutions. It would also be wise to use additional tests designed to evaluate the technical and interpersonal competencies needed for the job.

Considering the growing gap between skills acquired in college versus on-the-job readiness, any modest performance advantage stemming from the university rank might also be mitigated by on-the-job training. Since employers already invest significant resources into training new hires, such training may be a much better determinant of performance than the rank of the university from which the hire graduated.

The answer would also depend on the demands of the job. Does it require a top performer from a higher-ranked university where even a 2 per cent improvement in performance is critically important and offsets any pay differential? Or can the performance criteria be met by graduates from lesser-ranked universities? To make the most strategic decision, an HR manager should know the answer to this question before she looks at an applicant's college pedigree.

- Harvard Business Review