Anatomy of A Big 4 Reduction In Force
Gathering information and thoughts for a longer piece on how reductions in force or “layoffs” work in the Big 4.
Please check back later today.
In the meantime, for more information about “forced ranking,” the “performance review process” at PwC, and the theory of layoffs in professional services firms check the links above and posts below.
With Lehman on the edge, what does translate into for employees at its current accounting firm (E&Y)? If Lehman is acquired we will surely see layoffs at Lehman but it also has a direct effect on it's auditors also. Will we see another round of reductions similiar to Deloitte?
@loyaltyoncehighlyvalued
All depends on who buys LEH. Usually it’s the acquiring entity’s auditor that prevails. Look at likely candidates as they solidify. B of A seems highest on the list and they are audited by PwC.
Rumor was EY had significant layoffs on the East Coast last week and is now the first one to start rescinding offers to students.
Partners in most firm are not paid a salary. They generally share in the partnership profits and are paid at certain points throughout the year, for example, at the end of the year when partnership profits can be computed. Until they receive their drawn, they may sustain from loans from the partnership.
Their pay is dependent on the number of units they hold in the partnership , multiplied by the firm determined amount, which is based on the profitability of the partnership. The units are awarded based on performance. So a first year partner has substantially less units than a seasoned partner.
If a partner holds 500 units and the price per unit is $1,000, then the partner makes $500,000.
When the economy is good, the partners pay increases due to extra units they are allowed to buy and the increased unit price. They hire more staff (resources) to generate more revenue for the partnership and themselves. In many cases, they overhire in an attempt to snatch up the limited resources in the market place so clients are left short of resources and forced to pay their fees. Particularly with the concern that there are less accounting grads than retiring babyboomers.
When the economy is poor or slows down down, their pay decreases. At such times, the firm tries to manage costs, a big component is the salary of their staff. They layoff so that they can maintain the pay that they are accustomed to. And the hard working staff who sell their lives to the firm are asked to leave. They can tell the staff the truth or make them feel like they are underperformers.
As partners of a partnership, they sign on to undertake risks. However, instead of reducing their own pay, they reduce staff, even thought they made the decision to hire the staff and are responsible for bringing in work to keep the staff busy. Therefore, in reality, it is the employees who are the risk takers in the partnership, although these employees’ salaries are not commensurate with such risk.
Someone said that the Deloitte layoffs are about partner greed, and I agree.
Apparently, a large number of Deloitte FAS employees were laid off last week. Francine’s blog and the honest posters may have caused the Deloitte to handle this round of layoffs better, as we have not seen any posters complain. Or, the severance agreements now contain a no posting on the internet clause. Thanks to the attention that Francine has brought to this matter.
What to do? Companies need to increase the pay of their accounting resources. Stop letting the public accounting firms hog all the great resources and dump them when they don’t need them.
It is better for EY to recind offers to students than for them to lay off their experienced hires just to maintain good relations with the schools, the pipeline for the accounting firms. At least EY is attempting to be loyal to their hardworking staff first, rather than trying to laid them off.
Monday, September 15th is a corporate tax filing deadline. Let’s see what happens to the tax people after this deadline. The economy is slowing down, and tax return preparation has been keeping the staff chargeable. Perhaps the bad publicity to the accounting firms will make them wait until October to lay off. No wait, why not right before Christmas or New Years? Isn’t this why the firm leadership gets paid the big $$$ for, to come up with these brilliant ideas for maintaining their own income?
What idiot at Business Week decided to rank accounting firms as the best place to start a career? Polling the university professors is not a reliable gage. The schools spend so much $$$ at the universities, their pipeline. What a recruit sees when being recruited is completely different from reality. Business Week, start doing your homework and stop misleading people with your ignorant list.
@959am – how do you know that every Big 4 LLP is structured with a draw basis via loans through the year? It could be a salary and than profit sharing based on units owned at YE…unless you are a partner or were up for it…sounds very risky to take loans from the LLP through the year – how would one deal with a short fall?
MER is being bought by BA!!! So what Big 4 staff is getting the shiv there?
LEH is gonna hurt EY thats $30+ in fees…gone.
Francine – interested to see the full post on this – Uncle Peat made RIFs through the year and heavy on the advisory side. Many were deemed performance related (quite the euphemism) – but utilization is down, but how is that staff’s responsibility…
@anonymous Writing a post right now updating all the auditors and clients given al the activity in financial services this weekend and with Fannie/Freddie.
Will also post on how each firm handles partner compensation and loans related to anatomy of layoffs. It is now public knowledge (in a general sense) given a recent report to the Treasury.
Awesome Francine!
LEH is going 11 (or 7) very soon…
EY laid off 1500 countrywide this past week. They call you in, tell you are being “separated” from the firm and you and your stuff are gone in 2 hours- WITHOUT A TRACE- You are escorted out the door – I watched as one of my co-workers was hurried out.
EY lost loads of business with the market decline and has such has been trying to avoid paying severance by trying to make people quit by making up fictitious stories about performance. In addition to my co-worker I know 3 other people who were raked as superstars in June then came August/September and unofficial write-ups were created which were slanderous. These people were harassed with vicious emails as well. HR did nothing. They just stood by and watched this happen and explained that the partners could do as they pleased since they owned the Company. YES this is true- HR is not advocating for the employee. The partners are greedy and it is shameful. They lack dignity and integrity.
I am a businessperson an understand the ebbs and flows of the market. How EY is handling this reduction in force is disgusting. WE AS EPLOYEES ARE LIVING IN FEAR. ONE WRONG MOVE AND YOU ARE ON A HIT LIST. I will not be surprised if lawsuits start coming in- I wonder how many people called the ethics hotline.
Insider Information:
EY is looking to lay off another 2000 before year end.
The bloodletting had already started
People always hate to talk about when they are laid off. But as it has become every day’s news headline since Yahoo started it with cutting 1500 of its task force last year, now a need of platform has been in demand where people can express their selves in words how they are feeling about their company, whey the got laid off was that justified or not.
And every thing they want to tell anonymously.And http://www.layoffgossip.com is providing you that platform.
KPMG slashing 401k contributions and hinting at more RIFs…how bad are things?
Everyone is expecting recession getting over soon. I have a very close friend, who graduated from Harvard. Worked for ML for over 8 years, recently he’s been “right sized” too, despite of his outstanding performance and the increasing revenue he generated. OMG, now the banking industry is badly hurt, how long it would take for those financial background guys like him get back to the job market. Banking jobs are not there as much as before as easily seen on international jobs and other job sites in the region