Exploiting Salary Discrepancies in Industry

Today I’d like to borrow a concept from Wall Street and apply it to accelerating your career in industry.

Wall Street traders engage in something called “financial arbitrage.” 

This refers to noticing discrepancies in market prices for two financial instruments and exploiting it for profit.

For example, the orange juice manufacturer notices that the cost of oranges and labor is far lower than the market price for bottled orange juice. 

The company engages in a form of arbitrage, buying raw oranges and hiring employees to make orange juice — and selling the latter for a profit. 

McKinsey notices a discrepancy in what Fortune 500 clients are willing to pay for Ivy League grads with McKinsey training versus what Ivy League graduates require in salary to work at McKinsey.

McKinsey engages in arbitrage. It “buys” Ivy league talent “low,” and sells that talent “high.”

Wall Street traders might take $100,000 USD and convert it to Japanese Yen; then convert the Yen to Euros, and then to $100,001 USD.

In financial markets, arbitrage opportunities exist for small moments in time due to lag times before all market participants recognize that the arbitrage exists.

In highly efficient and competitive markets, arbitrage opportunities exist for fractions of a second, and only large trading firms with very fast computers can exploit them.

In inefficient markets, arbitrage opportunities can exist in one form or another for years.

One example of this is the arbitrage opportunity between consulting skills and their market worth in industry.

Ex-MBB consultants routinely earn at the very high end of industry compensation — despite often lacking industry experience.

After my first year in industry, I was earning more than people that had 10-20 years more industry experience.

This discrepancy in compensation is because employers value consulting skills. People with such skills tend to produce larger and more frequent achievements than their peers. Despite paying such employees more, the employer still comes out ahead.

Of course, this isn’t new news.

What is new news is that it is now possible to obtain the small subset of MBB consulting skills that are most frequently used in industry without having to actually work at MBB.

While it takes years of working at a McKinsey, Bain or BCG to get the full consultant skill set, you can learn the most useful 20% in a single day or two.  Click Here to learn more about how to do this.