accounting compensation-not too shabby

College Majors Business Majors
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<p>So I often see threads about accounting and its compensation. Often the response is to go into finance, its compensation is much higher. Well, that may be true, but accountants can make some good bucks.</p>

<p>My h was talking to a partner at a top 4 accounting firm today. He was recruiting at our school. He said the average partner compensation is down recently to only $800,000/yr.</p>

<p>I also found the following based on top 100 accounting firms–</p>

<p>Average partner compensation has increased 50 percent since 2001 – from $305,000 in 2001 to $461,272 in 2006-2007. Interestingly, during that same period, IPA 100 partner charge hours have actually dropped almost 8 percent, from an average of 1,187 per year in the beginning of the decade to 1,094 in 2006-2007. (accounting.smartpros.com)</p>

<p>Maybe IB and Trading make more money, but this isn’t a bad living wage!</p>

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<p>Wait, so you’re telling me it’s possible to be successful even if you don’t do banking or go to Harvard? </p>

<p>Obvious ■■■■■ is obvious</p>

<p>not serious. Good post.</p>

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<p>

</p>

<p>He may have embellished. I have a very close relative who just retired as a partner for Big4 (btw mandatory retirement at age 60) and the average is more like half that, still a goodly amount. The high amount may reflect a very productive partner who brought a ton of business to the firm.</p>

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<p>So you are going to use your ONE source, and mind you that is 1 out of approximately 9,000, to discredit another source that actually used a statistic that can be reasonably verified.</p>

<ol>
<li>You can look for average compensation for partners in the UK. Average compensation is published by the firms in an annual report required by the government. Average partner salary in the UK is around 860,000 pounds. Multiply that by around 1.58 and you will arrive at the dollar amount. Mind you, UK has the highest big 4 salaries. </li>
<li>Inside public accounting’s report “Best of the Best,” top 25 CPA firms ranging from 6 mill in revenue to 250 mil shows average compensation at those top 25 breaking $700,000. The largest firm in the group is 5% the size of the smallest big 4, KPMG.
[INSIDE</a> Public Accounting Names the 25 “Best of the Best” CPA Firms : CPA Trendlines](<a href=“http://cpatrendlines.com/2008/10/22/inside-public-accounting-names-the-25-best-of-the-best-cpa-firms/]INSIDE”>INSIDE Public Accounting Names the 25 "Best of the Best" CPA Firms - CPA Trendlines)</li>
<li>Many of the partners have their taxes done by the firm and the stats do get passed around. Many partner salaries do hit the 7 figure threshold and new partners start around 300+k.</li>
<li>DT does have average partner salary at slightly over 800k. I have seen the internal documents for average comp. PWC and EY are slightly lower by 30-50k. KPMG, i do not know, but they are supposedly reducing partner draws by 10% for fy 2010 which means they essentially can only withdraw 90% of what they usually would be allowed based on previous year comp numbers. This is a negative against the firm, so take that into consideration</li>
</ol>

<p>On another note, billable hours vary significantly depending on the partner’s role in the firm. Relationship partners bill considerably less, sometimes as low as 400hrs while technical partners bill around 1100. The billable hours generally depends on the size of the revenue that client provides. Studies usually break it down to 20 mil and higher, 15 and 10 mil and lower, with the smaller clients receiving more billable hours. </p>

<p>However, that does not mean those are the hours worked, those are merely the hours billed, which those who have worked know vary drastically with actual hours worked. Partners are very very busy people, so are senior managers and managers. However, when you reach these levels, your hours typically drop BECAUSE you move to a management role and a relationship role and because your charge rate is much higher than staff and senior.
If the actual average was merely 400k, the partners would not risk the exposure to gigantic law suits. They could easily move to a small regional firm and comfortable make 250k-400k with little to no liability that accompanies public company audits.</p>

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<p>I find my ONE source more credible than an article. This is a guy who’s been a partner in a Big4 firm for over 30 years. According to the article you cited, the $700,000 was reached for the first time in IPA history so it seems to reason that MOST compensation is under $700,000. UK salaries are UK specific.</p>

<p>If you claim to have seen internal documents of various comps, then why do you question my source who’s a partner at one of the companies. You are a community college transfer in his last year at UCSB.</p>

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<ol>
<li><p>Actually I have graduated. A quick search based on my post history does not give you enough insight into who I am or what I do. My activity on this forum has significantly dropped.</p></li>
<li><p>I am an accountant working at a large firm, so is my fiancee, so I have access to certain thing that you do not.</p></li>
<li><p>You are not an accountant.</p></li>
<li><p>The fact that a small firm in comparison to the big 4 can and has recently broken the 700k barrier is HUGE. Risk vs Reward. Big 4 partners harbor significant liabilities, do not tell me that they are being paid less than smaller regional/state firms that holds SIGNIFICANTLY LESS LIABILITY. You are essentially telling me I should be compensated less for a junk bond than a US treasury note. Less risk = less potential reward, that is news to me. </p></li>
<li><p>Please do not tell me that UK partners make over 300% the US equivalent. Based on the 2009 UK reports, DT, the highest paid firm, averaged 883k pounds, or $1,400,000. Who logically think the US partners average around 400k when they, as a single country, produce well over 1/3 of all global profits?</p></li>
<li><p>And your friend has not been a partner for over 30 years. That would put him at partner level before 30, which is highly unlikely. It is so unlikely that I would be able to find a story on it since it puts him in a special group of people. Most of the large firms have just a few partners who have attained the position BY the age of 30, and one large firm that had ONE person reach partner by 28. All of these people have stories published about this accomplishment. And these stories usually state, and there are stories for each firm, how many in the past have attained such achievement. </p></li>
<li><p>To those reading this post, would you rather trust IPA, an award winning publication that has existed for the past 20 years, or an anonymous poster who does not work in accounting? Yes, IPA does not explicitly state the big 4 make XXX,XXX, however it gives you an average for firms that range between 1-5% of the smallest big 4, KPMG. It is common knowledge that the big 4 “generally” pay the most and have the highest billing rates. </p></li>
<li><p>Lastly and most importantly, PWC actually did release partner payout numbers to the WSJ in 2007. They listed partner payout at 1-1.4 billion. They had around 1850 partners at the time, so someone can do the math.</p></li>
</ol>

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<p>southpasadena, how much liability does the average partner really have? My understanding of LLP’s is that each partner has to have a certain amount of equity in the firm and that is all he stands to lose(aside from his job) in the event of a massive lawsuit, meteor strike, whatever. I don’t know if you know the answers, but here are some questions. I don’t know if I’ll ever be a partner anywhere but I’d like to know the structure of the place even if I don’t go up more than few rungs before leaving.</p>

<ol>
<li>How much equity does the average partner have?</li>
<li>Is any of the listed compensation in the form of increased units of ownership in the firm(i.e. is the big 500k payday at the end of the year 250k cash and 250k worth of units of ownership in the firm that they can’t get at right away). </li>
<li>When somebody makes partner, do they have to write a big check to buy-in?</li>
<li>When a partner retires, do they cash out, keep getting paid for their capital, or what?</li>
</ol>

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<p>I have some of the same questions as you. This is what I understand (disclaimer - Some things may vary by firm and my understanding I have to admit is nowhere near 100% on this)</p>

<p>Firms can distribute earnings based on units given to partners/principals (PP) or on a fixed fee basis with some firms adding bonuses on top of this. ITHINK units are determined during performance reviews and are based on performance, role, responsibility and various other metrics. The units by themselves are worth nothing. When the distribution amount is determined each year, the units will be given a value, say $1,000. If the PP owns 1,000 units, that equates to distribution of $1,000,000.</p>

<p>Average PP cap contribution for the 6 largest firms was over 400k in 2007, with much of that coming from an initial buy in and the rest, depending on firm, coming from yearly contributions decided by a fixed percentage and applied to the PP’s specific distribution for that year. This doesn’t seem too bad, but it can be hard on the person trying to buy in. Most buy in funds are paid using third party loans which must be paid using after tax funds, which in essence, is contribution to an ability to receive pretax income not yet earned. This is a burden for most. </p>

<p>Each year, the firm designates one pool of money that will be distributed to PPs. throughout the year, partners I believe do not receive a salary, instead they receive a draw, somewhat similar to prepaid taxes. Based on previous performance, they are allowed to take a certain draw throughout the fy as their salary. When retiring, they withdraw their capital</p>

<p>Now, if we consider the different expenses a firm has, we will find that litigation costs are 7% of higher of total yearly revenue, which is significant, but hardly expresses the litigation burden the PP hold*. London Economics did a study to determine how fragile the big 4 are. The results were surprising considering the size of these firms. I do not remember numbers off hand - I can look into that later. One of the death threats for a firm with capital contributions making up over 75% of total capitalization means that in dire situations, if masses of PPs withdraw their capital, the firm CAN VERY EASILY FAIL!</p>

<p>*And please consider that litigation is not the only expense measure for protection, you also have to consider insurance costs which have increased substantially over the last 5 years. I am sure there are other costs, but I do not know what they are. One survey conducted by RIMS in 2006 found that liability costs are on average $.31 per $100. The big 6 firms have liability costs exceeding 20 times that of the overall economy, and when compared to other professional service firms, 17 times more. Also consider the fact that % of revenue that becomes compensation for PP’s is a smaller % than all the other major pro service firms such as consulting, law, etc (more profit less liability, YAY!!).</p>

<p>The liability is the loss of your capital. A smaller firm will have that same liability, BUT the reason they have less exposure to the liability is because they do not audit the largest public companies. These law suits can be very large and a 1 billion dollar lawsuit will not be able to be paid nor will the firm have enough insurance coverage to pay. A smaller firm obviously is highly unlikely to be exposed to such a suit. Currently, there are a few cases trying to implicate the firms as a whole which will bring even more liability. EY will have the greatest exposure because of their new global network. So if something big happened in Italy, for example, Parlamat, the litigation will also effect the DTT US and not just Deloitte’s Italian firm. Or, for example, Satyam was a huge scandal, and if things work accordingly, even though PWC US did not audit them, they may be liable if an attorney can successfully convince a judge that these firms are really just one company with different networks to protect liability. THE PLAINTIFF ATTORNEYS ARE GETTING VERY CLOSE TO DOING THIS IN SEVERAL CASES – and I can explain more on this later.</p>

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<p>Oh, lastly:</p>

<p>The largest firms have crappy 401k contribution programs. Deloitte only gives $.1 on the dollar up to 6% of salary. So if you make 50k and contribute 6%, or $3,000, you will get a mere $300 contribution by them accompanied by what I believe is a 5 year vesting schedule. As a sales associate at Home Depot a few years ago, as comparison, they were providing $1 for $1 matching for up to 6%, so if you imagined the 50k salary and $3,000 contribution, Home Depot will give you $3,000, or 10 times more than Deloitte.</p>

<p>Big 4 do have generous pension plans however, or so I have been told. Of the staff level employees I know, no one knows how it works.</p>

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<p>This is not a friend, it is a close blood relative. I doubt you have much information ,having worked not more than 3 months. If you graduated, it must have been last June.</p>

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<p>Okay. I asked a PWC guy about Satyam at a presentation and the response was essentially " I dunno. PWC India is pretty much another company". I was not exactly satisfied by the response so your answer helps a bit. I didn’t point out that PWC was leading the pack last time I checked as far as total payouts to lawsuits recently. My dad is retired partner of a big law firm and his capital in the firm was never that big(little more than half his yearly income) but they obviously had less liability exposure. I wasn’t sure which way the Big Four would try to go as far as that sort of thing goes. On the one hand making sure everyone’s got a big buy-in means you’ll be able to weather some storms…on the other hand if you face total legal apocalypse(a la Arthur Andersen) everyone is probably better off if the firm goes under without everyone losing most of their net worth in the process.</p>

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<p>Oh, one final thing. What does PWC US(or PWC Global) get out of PWC India anyway? Franchise fees? Seems like a lot of risk to have tentacles in notably corrupt countries if the home offices don’t get a lot out of it. </p>

<p>I understand that the Big Four might employ Indians in particular as outsourcing for menial tax work and whatnot. That makes plenty of sense. I mean what does a partner in the US get when a partner in India gets work auditing some company in India.</p>

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<p>They are supposed to be separate legal entities which reduces liability exposure. But, why does PWC US market itself as a global firm? Why does PWC US manage and give help to PWC India regarding quality controls, etc? This is why the plaintiff attorneys are trying to break this artificial barrier. BDO International was recently implicated in such a case and the judge was not satisfied with plaintiff reasoning to involve BDOI. But this is just one of many against the largest firms, so we shall see. I am no expert, use my information to search out your answers so you can develop your own idea and opinion as I have. </p>

<p>I may have just started, but that doesnt deny logic when reviewing the material in this thread. If you search thecaq.org which is the website for the Center of Audit Quality, you will find information for 2006 or 2007 stating average partner compensation at the big 6 firms being 780k with a median of 705k. The Center of Audit Quality is a nonprofit run by leaders from public accounting firms and it is affiliated with the AICPA.</p>

<p>Remember average includes all outliers, high and low. Even thought some make 2 million and many make 300-400k does not change the fact that the numbers given are an average. If you would like to email me, I can email you the document from the Center of Audit Quality. I do not have the address for it anymore, so I cannot link.</p>