Laboring in the Big 4
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Laboring in the Big 4
Maybe today's top youth don't want to work in an industry chronically in the news for all the wrong reasons.
Plus ça change, plus c'est la même chose.
An epigram by Jean-Baptiste Alphonse Karr in the January 1849 issue of his journal Les Guêpes (“The Wasps”).
Yesterday, Labor Day, I was going to write about salaries for entry-level auditors. I left it to today lest it be a depressing way to spend a holiday.
There are lots of places publishing statistics about accountant/auditor pay trends. But, just like 15 years ago when I first wrote about this, there’s no one good place to get the reliable information unless you are the Big 4 firms — who all use Mercer to set pay — or maybe the schools that they recruit from.
Starting salaries still vary widely by geography, but maybe not as much as they used to. Offices in high cost of living cities on either coast still pay a bit more than the Midwest, but given the acute shortage of staff, I suspect that it’s leveling out.
When I wrote about salaries in 2008, I based my conclusions on input from students who were in the mix. The excerpt, from my legacy blog re: The Auditors, has 123 comments. It acted as an informal forum without me even planning it to be.
As you can see, these salaries all hover around a total package of $62-65,000, salary and bonus, with different mixes of salary and bonus offered to make any particular student feel special. There are regional and potentially office differences. I promise to update or adjust as you, the reader, provide more data.
Should you try for a bigger salary or a bigger bonus? If you have the choice, and that’s a big if, I would take the cash up front, even with a payback requirement for not staying the year or two commitment they require. A higher starting salary puts you at a higher salary compared to your peers and means lower raises later, assuming you all do equally well. You’re going to stay within a range, from a base salary perspective, for a while. Any base pay differential evens out over time. The raises for employees with grad degrees are often a smaller percentage – even though the actual RAISE might be bigger the first year or two, it’s because it’s calculated from the bigger base salary.
So always take cash up front! (If they lay you off after the first year, they won’t make you pay it back…)
Then there’s the overtime issue. We’ll have to see what comes out of all these lawsuits. But I hope it is justice.
EY: $60k + $5k bonus (1 year commitment) + 15 vacation days (10 firm holidays) + $1k relocation reimbursement after acceptance of the offer.
KPMG: $58k + $4k bonus (1 year commitment) + 25 paid vacation, relocation “bonuses” also available
PWC: $59k + $3k bonus (2 year commitment) + 15 paid vacation (10 firm holidays)
Deloitte: $57k + $3k bonus (2 year commitment) + a lot of vacation/holidays
Each year Going Concern uses the Robert Half Accounting and Finance Salary Guide to predict pay. In 2023, they published averages for all firms, not just the Big 4, but as you can see the numbers for entry level auditors are even lower than in 2008!
Like in previous years, Bob breaks down starting pay ranges by percentile, based on a candidate’s experience. For 2023, there are three salary percentiles with the following descriptions:
25th percentile: New to the role, with little to no experience; requires more than casual instruction or supervision to perform day-to-day duties.
50th percentile: Has the experience to consistently perform core responsibilities without direct supervision; very comfortable with processes and subject matter associated with the role.
75th percentile: Value to the organization goes far beyond the ability to perform normal job duties; has rare qualifications that enable consistent contribution in unique ways; ready for next career level when available.
So without further ado, here are the starting salary projections in public accounting for 2023. Then we’ll take a look at how these projections compare to Robert Half’s starting salary predictions for 2022:
By the way, the overtime cases settled and nothing changed. From my column at Medium.com in 2015:
I predict the largest public accounting firms will mandate a Masters Degree in Accounting to be hired and disqualify anyone with only an undergraduate degree, whether or not they have the required 150 credit hours. The largest public accounting firms will expect passing grades on all parts of the new bar-exam style CPA exam before a full-time start. In addition to passing the exam, most jurisdictions also require between 1–2 years of experience doing audits on the job in a public accounting firm to be licensed as a CPA. If graduates start full-time employment with the exam already nailed, within 1–2 years, depending on state law, everyone is licensed. (I wouldn’t be surprised if the firms start lobbying to reduce experience requirements on the strength of their significant, quality ongoing in-house training programs that meet continuing professional education requirements to remain licensed now.)
When all this is in place, the largest public accounting firms will have closed the window on vulnerability to any new class action overtime lawsuits brought by entry level auditors.
This excerpt comes from “Have Advanced Degrees Increased Ethical Professionalism for Auditors?”, a chapter I wrote for The Routledge Handbook of Accounting Ethics, Taylor, Eileen Z., and Paul F. Williams, eds., Routledge, 2020.
Even unlicensed CPAs now hold jobs that mostly require a graduate degree, similar to an extended course of specialized study like law or medicine. Accounting is now eligible to be considered a “learned” profession, allowing judges in the future to interpret that as allowing an exemption to overtime for unlicensed associates under state and federal law (McKenna 2011b).
Jason Campbell; Sarah Sobek; et al., v. PricewaterhouseCoopers, LLP (Campbell et al. 2011) was the first overtime case to reach the class certification stage against one of the Big Four accounting firms. Kershaw, Cutter & Ratinoff’s Bill Kershaw, who represented the plaintiffs, was quoted by CFO.com at the time regarding the rationale for bringing the case:
“For years, the Big Four accounting firms have ignored Federal and State laws mandating the payment of overtime to unlicensed accountants. This is in stark contrast to smaller accounting firms, many of whom comply with California’s overtime law and pay overtime to their unlicensed associates as non-exempt employees.”
So, the 150-hour rule is also coming under fire in this period when fewer students want to study accounting, the ones that do major in it do not in greater numbers want to take the CPA exam, and the largest global firms are having trouble recruiting. But as I told an interviewer from the UK last week, some academics are part of the problem, not part of the solution.
Again, from “Have Advanced Degrees Increased Ethical Professionalism for Auditors?”, a chapter I wrote for The Routledge Handbook of Accounting Ethics:
Universities that educate prospective CPAs generally prefer the 150-hour requirement because it drives expansion of accounting programs, adding another year of tuition revenue for a now-mandatory program for nearly anyone who wants to work in public accounting.
In many cases, the programs draw primarily from the same school’s undergraduate accounting or business program.
Accounting faculty generally also enjoy MAcc programs, as they can add graduate teaching experience to CVs, too. The 150-hour campaign was a long but successful one and was supported strongly by academics, who believed the accounting profession deserved more prestige.
What do I think is ultimately holding back students from studying accounting, taking the CPA exam, and working for the Big 4?
Accounting has always been an area of academic focus that benefits from an interest and an aptitude in the discipline. Something I wrote for Going Concern in 2009:
Sarbanes-Oxley pushed you to accounting. When you started college, the professors and the media said accounting was booming, tons of accountants needed. Do four years and get a job no prob, rather than an MBA right away. Might as well put a couple of years in as an excel jockey, easy schmeezy, and then head to Stanford. Anyway, an art history degree is not what it used to be. And a 3.9 wasn’t so tough once you remembered debits to the left, credits to the right.
Or was it the other way around?
Do you know what you’ve gotten yourself into?
It’s a sure sign you’re really not an accountant when…
10. None of your fellow first-year associates know what a Bilbao or a Gehry is, much less have a valid passport. And their eyes glaze over when you speak Catalan.9. People can see your nipple rings through the high-thread-count white Armani shirt. All the other guys are wearing Brooks Brothers.
8. Everyone talks about FAS 123(R) but go zombie when you mention Black-Scholes or use the word “insouciant.”
7. When the gang heads to Potbelly for lunch, you head to the OTB.
6. We’re working for the shareholders? Aren’t we supposed to kiss management’s ass and make them more profitable? That’s how you keep your job and earn big bonuses.
5. At the office until 9 is ok, you’re a night owl, but now we go to that gallery opening and after party, no?
4. You’d rather set up your Pandora account than scan those expense report receipts, make an electronic copy in a special folder on your hard drive, labeled in a consistent way each week, and cross-coded for the engagements you worked on. How anal!
3. Tweet, Digg, and StumbleUpon are daily habits, things you do after several Stella Artois.
2. When you ask for the Veeeeg-gan entre at the holiday party, everyone retranslates for the waiter, Vegggg -gan.
1. No one else has quite the same “Daniel Libeskind-like” eyewear.
Passing the CPA exam has no utility if you are not going to get the experience requirement in public accounting. It’s not the credential that signifies a major accomplishment outside of public accounting that it used to be. In some states you can’t even put “CPA” on your resume or LinkedIn profile if you’re not licensed. If they’re going to eventually go for an MBA and the big money many think they should pursue a CFA instead.
Finally, maybe the youth are the only ones reacting to the reputational trash heap the Big 4 has become. Even KPMG is surviving and thriving with clients and the federal government despite almost being convicted for tax fraud in 2005, a scandal that put several partners in the frame for criminal charges, and a recent spate of failures of its banking clients.
Issuers can’t change auditors so easily and many of them don’t really want to, regardless of what the PCAOB says.
Let me end with something I wrote for Labor Day in 2008, 15 years ago:
It seemed fitting to survey my writing about the relationship between the Big 4 and their employees. I’ve included a link discussing the relationship between Big 4 senior leadership and the average partner, since the average partner is really no more than a glorified employee for all the real job security and authority over firm activities that he has. And the price is high…
One of my first posts discussed the fundamental principles for professional services firms, as taught at the Harvard Business School:
1)Partnership structure is ideal.
2)Small is beautiful.
3)Organic growth is superior to growth by acquisition.When a professional services firm strays from these principles, they run the risk of sacrificing the values, culture, code of ethics and requirement to put the public and client’s interests above theirs that is inherent in being a “professional.”
We can see that defying these principles has affected the firms’ ability to be good partners to their partners as well as stewards to the non-partner staff that support them.
We see it when firms struggle all over the world to develop representation at the partner level that is aligned with the percentage of women accounting graduates and those of color and diverse ethnic backgrounds.
When it comes to fair pay, the Big 4 has to worry about whether they’re paying their own staff as well as their vendors fairly. And based on the lawsuits and labor problems, they’re not doing a very good job of it.
They are paying their new recruits a healthy starting salary by most standards, but not when you consider all the unpaid overtime hours. And since there’s no free market in the college recruiting arena, it can hardly be called just and fair.
And when they want to make more money or screw up on planning and forecasting, they just let the employees go and pay them off to keep them from sharing their humiliation and hurt with anyone.
They do have formal performance review processes, but they were implemented in the last few years to respond to the need for a way to paper over the issues they had when business tanked in 2000/2001 before Sarbanes-Oxley and to address the slowdown or perceived slowdown that is occurring now.
Borrowing from one of their most notorious clients, the review process is not about judging performance using an objective standard that measures knowledge, client service, and ethics, but about how well you perform compared to a peer group, however skewed and clique-ish that is.
Is this really the way to run a professional services firm?
© Francine McKenna, The Digging Company LLC, 2023