KPMG’s UK partners saw their pay climb to an average of £717,000 last year as a wave of dealmaking helped offset a litany of fines for audit failures and misconduct by the Big Four firm.
Like its rivals, KPMG benefited from a surge in mergers and acquisitions, and as companies continued to seek consulting advice on how to adapt to changes wrought by the pandemic.
The firm reported a 16 per cent jump in fee income to £2.72bn in the 12 months to September. But profits were only 3 per cent higher at £449mn after being squeezed by inflation and fines by UK regulators, including a record £14.4mn over the misleading of inspectors on the audits of outsourcers Carillion and Regenersis.
While average partner pay was up from £688,000 in the previous financial year, earnings remain lower than at KPMG’s Big Four competitors. Deloitte and PwC handed partners an average of more than £1mn last year, while EY paid £803,000.
KPMG partners would have been paid an average of £757,000, but £40,000 was held back. The firm still faces the prospect of further regulatory fines but chief executive Jon Holt said the withholding of funds was “not connected” to an increase in the firm’s provision for future fines and legal claims from £144mn to £179mn, the equivalent of almost five months’ profits.
In addition to fines and legal fees, KPMG’s profits were also held back by rising pay.
Its annual wage bill increased by £132mn after it gave 16,000 staff increases of between £2,000 and £4,000 in May in addition to its annual autumn pay round. The firm also spent £130mn in areas such as hiring and technology investments.
A climb in revenues was led by the deal advisory practice, where a booming market raised sales almost a quarter to £443mn. The consulting practice boosted revenues by 22 per cent to £811mn.
Its audit practice, meanwhile, increased revenues by 10 per cent to £695mn, while the tax and legal arm grew sales by 13 per cent to £455mn.
The accounting profession is set to be redrawn by EY’s plan to spin off its consulting arm, but KPMG chief executive Jon Holt said the results demonstrated the strength of combining audit and advisory practices. “We’re not splitting our business,” he said.
Breaking up the business would not improve audit quality, while KPMG’s “multidisciplinary” model offered staff varied careers and better equips the firm to solve complex problems faced by clients, he said.
There had been “a softening” in deal activity in recent months but “demand for consulting, tax, legal and audit services continues unabated”, he added.
Holt was paid £2.7mn in his first full financial year at the helm as KPMG continued to work through a laundry list of regulatory probes and lawsuits against it after years of problems in its audit division.
The firm was fined £7.5mn for failings in its audits of Rolls-Royce, Conviviality and Revolution Bars. It paid £5mn to settle a negligence claim by former audit client Quindell.
It remains under investigation by the FRC over its audits of trucking company Eddie Stobart Logistics and Carillion, which collapsed five years ago. The firm is also defending a £1.3bn legal claim by Carillion’s liquidators.
KPMG has resumed bidding for government contracts following its decision in December 2021 to halt pitching for new work following a threat by Whitehall officials to impose an outright ban if it did not halt a run of scandals.