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Rate of salary growth slows but bonuses on the rise Back  
Bearish predictions on the industry-wide increase in salaries over the coming year suggests that the accountancy industry is not immune from economic slowdown.
There is a marked slowdown in the rate of growth of salaries in the accountancy profession. In this year’s survey 80 per cent of respondents said they expected the industry salary to increase by just 6 - 10 per cent in the coming year, while a more optimistic 13 per cent suggested the rise will be in the region of 11 - 15 per cent. No one predicted higher rises than this which shows the increasing caution of the industry.

In last year’s survey the expected industry salary change was higher with 65 per cent expecting a 6 - 10 per cent increase, 24 per cent expecting an 11 - 15 per cent increase and a further 6 per cent at the top end of the scale expecting an industry salary rise of 16 - 20 per cent. (see salaries and bonuses table on this page)

This year the majority of respondents, 53 per cent, said in general salaries had increased by 11 - 15 per cent at the last general review, while a further 43 per cent of respondents said salaries had increased by 0 - 10 per cent.

On the other hand the level and use of bonuses within the profession is increasing. A total of 7 per cent of accountancy firms expect to pay bonuses worth more than 20 per cent of their employees’ salaries in the coming year. This is higher than the predictions last year when no firm calculated that the bonuses would be this high.

Last year’s results expected that 38 per cent of bonuses would be in the region of 0 - 5 per cent of non partner salary. A further 19 percent would be paid in 6 - 10 per cent of salaries, while another 19 per cent expected to pay bonuses in the region of 11 - 15 per cent of employee salary.

This year 29 per cent will be paid at the 0 - 5 per cent of salary level, a further 21 per cent will be paid at the 6 - 11 per cent of salary level, another 29 per cent will be paid at the 11 - 15 per cent of salary, 14 per cent at 16 - 20 per cent of salary and 7 per cent will be paid bonuses at a level of greater than 20 per cent of their salary.

Once again, KPMG leads the way in fee income per partner, at £1.767 million, down 4 per cent from last year’s figure but still ahead of rival PWC who recorded a fee income per partner of £1.37 million a 15 per cent increase from last year’s value of £1.19 million per partner.

This is a substantial difference by all accounts, especially when compared to the industry average of £846,000. The implication is that KPMG manages its business in quite a different way to most other firms, as evidenced also by its high partner to non-partner ratio of 22.

There are issues which managing partners will best assess in relation to the target of fee income per partner. Different business areas will give different results, and firms are only comparable, strictly speaking, if their business mixes as between audit, tax and advisory services are similar.

Recruitment and salaries
There was substantial recruitment into the top firms in 2000/2001 with a six per cent increase in staff numbers overall. And more is planned for the coming year - but it appears that the area of growth is in the graduate and trainee recruitment as the numbers of professional recruits is slowing. (see article on page 7).

Recruitment measures used
Finance asked firms what recruitment methods they did or did not use with frequency. Respondents were clearly happier to identify methods they did not use much compared to those they did use - evidence also, perhaps, of a traditional method of recruiting from colleges, not mentioned in the table. However, among the methods used to recuit with moderate or frequent use, the most often cited was ‘recruitment from other firms’. It can be taken that firms had in mind professionally qualified recruits mostly in this regard. This answer is not weighted by size of practice, so the answer of a firm like KPMG or PwC would have equal weight for the purposes of the question as a smaller firm.

Other methods suggested by firms that they use to hire new people included the use of internal recruitment departments, recruiting from universities and colleges, employee referral award programmes, recruitment agencies, internet, personal contacts / head hunting and career fairs.

Practice management
With increasing attention on the management of accountancy practices and regulatory changes in the offing, it is noteworthy that virtually all firms are in agreement that they would consider separately incorporating parts of their practice. Most firms will not take equity for fees, but a small and significant minority will do so, which may be indicative of a future trend. Two-thirds of firms have a policy limiting the size of a single engagement, and among the answers to that limit, 5 - 10 per cent of total fee income featured most often. The survey also asked what had been the size of the largest single piece of new business in the last year at each firm. Some were reluctant to comment, but among those that did, the relationship of that fee to overall fees per partner is the most interesting. Roughly speaking, that single new piece of business often represented about a fifth of average fee income per partner. In larger firms, that relationship would not hold since large new engagements would often be sold and managed as a team of partners.

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