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US partners at EY have been told the firm will hold back some of their pay for 2024 after a tough financial year that has left the accounting firm’s leaders facing criticism from their rank and file.
The decision to defer around 2 per cent of partners’ annual compensation was taken to help the firm manage cash flow, according to people familiar with internal communications, and has compounded disappointment over relatively modest pay increases for the financial year that ended in June.
EY has also been dealing with the fallout from a failed attempt to spin off its global consulting and tax advisory business into a new public company, a plan dubbed Project Everest. US leaders under managing partner Julie Boland defied EY’s global bosses and called off the plan last year after hundreds of millions of dollars had already been spent in preparation.
Boland acknowledged complaints about the US leadership in a recent webcast for the firm’s 4,000 partners, according to people who heard it. She said that an internal survey conducted by an outside consultant earlier this year revealed the widespread view that senior figures were not being held properly accountable for their mistakes.
The results were “hard to read, hard to hear, hard to talk about and it’s given me great pause”, Boland said on the webcast. “There seems to be a perception that there are different standards for senior leadership, as well as for those who are really strong in the market, and that we don’t consistently apply accountability to them across the board.”
She added that there was a need to be clearer on “why decisions were made” and to “evolve and strengthen” communication by management.
One partner told the Financial Times they felt senior US figures had not been held accountable either for the failure of Everest or for a run of poor audit quality scores from US regulators, which has necessitated a review of internal processes and contributed to a decline in EY’s share of the US audit market.
EY has yet to publicly report revenue figures for its global business, of which the US has historically accounted for roughly 40 per cent. But insiders say it has been affected by the slowdown in consulting activity that has held back all the Big Four firms since the end of a pandemic-era boom.
Compensation increases that averaged in the low single-digit percentages have been communicated to US partners in recent weeks, according to people familiar with the discussions.
The possibility that some of that compensation would be deferred had first been raised in July, according to one person, with the final figure of around 2 per cent decided more recently.
Partners will only receive the deferred pay after they leave or retire, since it will be added to the capital they are required to keep in the firm, the people said.
“Mandatory deferred compensation is a result of accrual income outpacing cash income because we did not collect on all outstanding invoices,” a person familiar with the decision told the FT. “As the business grows, we will have corresponding growth in our working capital, which is financed in part through the partners’ deferred income accounts.”
An EY spokesperson said: “Earnings were up this year and reflect the resilience of the US firm in a challenging macro environment.”
EY has also cut the proportion of expected profits for the current year that it pays partners in advance in monthly instalments, deferring more than usual to be paid after the end of the fiscal year.
“A lot of people are pretty upset,” one person said. “This is a really bad deal.”
Asked about the criticisms of US leadership, an EY spokesperson said: “Earlier this year, we proactively conducted a cultural assessment, the results of which showed our culture continues to be a source of pride for our people and partners. The assessment also highlighted some areas to be addressed to ensure our culture remains strong for many years to come.
“Speaking openly about those areas is indicative of how we plan to engage our US partner community to build on our strengths and create an even stronger culture, together.”