Deloitte: Can You Still Do Those Things You Do?
The drama continues at Deloitte. Their press release issued almost a year ago, in August of 2008, was a rare public acknowledgement by a Big 4 firm of what had been happening at Deloitte and the other firms, quietly, for at least a year – people were being cut and it wasn’t just for poor “performance.”
The Big 4 audit firms have been feeling the pinch for a while. The backlash against Sarbanes-Oxley costs finally caught up with them in 2006. Clients started taking the upper hand, controlling costs and giving firms ultimatums to get the same or more work done for the same or lower fees. No more 20-50% increases year over year. But the financial crisis hit already vulnerable firms, searching for the “next big thing” in XBRL and IFRS but only seeing regulator delays and clients resisting the pitch. By 2007, the beginning of the end of the mortgage origination firms, as well as ongoing poor results at such institutions as GM, (another Deloitte client), sent a signal that the coming recession would be a doozy, probably punctuated by failures, “sudden” implosions, forced takeovers by the government, and an ever dwindling number of companies with sufficient cash or credit.
Don’t ever let the audit firms, or anyone else, insist the stench of the failures wasn’t permeating the nostrils of a select few long before the fall of 2008, including the Big 4 auditors who are on the inside, on all sides. It was the triple whammy in the spring/summer of 2007 of failures/bankruptcies at American Home, New Century, and Countrywide, as well as the nationalization of Northern Rock, that forced me to realize the roof was finally caving in on the housing bubble.
Jonathan Weil, Bloomberg August 15, 2007:
“Think about the poor schlimazels from Deloitte & Touche LLP who blessed the books at American Home Mortgage Investment Corp., mere months before it went belly up.
Five months later, on Aug. 6, American Home filed for Chapter 11 bankruptcy-court protection, still brandishing the firm’s clean audit-opinion letter. There’s a reason why you don’t see auditors pursuing second careers as tarot-card readers. They wouldn’t be very good at it…”
Failures and forced acquisitions were starting to shrink the Big 4 audit services market. It wasn’t just belt tightening due to the looming financial crisis, but because the number of very large financial firms with Big 4 auditors, in particular for Deloitte, were disappearing.
By March of 2008, we had a crisis, even though it took the September meltdown for anyone in authority to admit it.
The firms, in particular Deloitte, saw it coming, felt it acutely, and began to act. Deloitte’s August 2008 admission of almost 1000 cuts due to economic circumstances was a watershed event for me, not only because a press release was issued, but because Deloitte PR gave me an exclusive statement on the actions.
Unfortunately, since then, even though Deloitte has continued to cut and make other changes such as finally slowing the recruiting pipeline to adjust to the new reality, they have not been as vocal. Maybe they think transparency did not help their image or morale. Maybe the volume of cuts became too frequent for public relations to keep up with. Maybe Deborah Harrington is busy responding to other Deloitte crises such as the Parmalat suit and preparing communications related to their acquisition of BearingPoint’s Federal Services consulting practice.
That doesn’t mean that the cuts and other human resources actions have stopped or subsided. On the contrary. With the recent loss of United Airlines as an audit client, as well as the effort at absorption of the BearingPoint professionals, new cuts and “rightsizing” are likely necessary. Those remaining are still waiting for official news of regarding promotions, raises and most likely announcements of “no bonuses.”
From a confidential source:
“People up for Manager have not received official communication and everyone is pointing their finger at the national office. It’s very late, even some Seniors did not know they were getting promoted until last week, and they found out because they were going to new Senior training this week. To put it in context, when I was promoted, I found out in end of May after the year end meeting for my office and went to training in August.”
And last week, professionals in the “Regulatory Strategy and Risk Services” line of business received this email from their Managing Partner Kevin McGovern:
“I wanted to provide everyone a quick update on our operations. Period 2 for us ended on July 25st and AERS (Audit and Enterprise Risk Services) finished ahead of plan by about $2M. Business Risk finished slightly below plan with hours being slightly ahead of plan and rate being the main driver of the revenue shortfall. Thank you all for playing your part in contributing to our performance thus far.
Over the next 3 weeks or so we will also reach a couple of Talent milestones that are extremely important – (a) communication on promotions, compensation and Annual Incentive Plan, and (b) goal setting which needs to be completed by the end of this month.
Now, as the summer comes to an end and we prepare for our annual busy season, we wanted to take a moment to communicate our expectations on utilization for all client service staff in Business Risk and Technology Risk, excluding Partners/Principals/Directors (P/P/D).
For our seasonal businesses we have to execute a lot of work in a short timeframe and in order to meet client demands we will expect all BR and TR professionals to work and charge 50 hour weeks beginning August 24th through March 5th (i.e., Period 4 through Period 10). This is simply taking what many of us experienced on a regional level in prior years, to a national implementation approach…what we need you to do, such as working closely with your Talent professional to adjust your personal schedule, and consolidating engagement team needs as soon as possible.”
Further details of expectations:
“..beginning in Period 4 through Period 10 (August 24th – March 5th) we will expect all Business Risk and Technology Risk professionals to support our operational goals by working busy season hours on all engagements possible. This will also allow us to more equitably distribute the work and project assignments across all of our professionals.
After considering the various legacy practices we have decided that during this period, each professional when assigned full-time to a client project is expected to work and charge 50-hour weeks. This is simply a consistent national implementation of what used to be multiple slightly different regional models with the objective of generating at least the same outcome on average across our practice this year as we have had in prior years. We realize that many of you will take some personal time off in Periods 7 and 8 and so our expectations for those weeks – typically 1 week in November and 1-2 weeks in December will be different.
…If you schedule less than 50 hours a week your Talent Professional will contact you to understand your situation… begin consolidating your engagement resource needs as soon as possible taking the 50 hour week requirement into consideration. ..not all budgets can handle 50 hour weeks, so work with the engagement P/P/D to consolidate work where possible, but this will be on an exception basis. If you plan to take PTO during the holidays please submit your request for approval as soon as possible so Talent professionals can place this time on your schedule. We would ask you to refrain from taking large extended PTO time during timeframes other than the holidays…”
Looks like a staffing firm to me. Do clients realize they may also see higher or compressed billing if they’re not on flat retainers? They will also see fewer people working longer hours in order to reach the utilization goals. Also more higher level staff will be looking for chargeable hours or perhaps doing staff work in order to attain those and therefore having less time to review work or, worse, end up reviewing their own work. Better scrutinize those invoices.
The reaction to these announcements by those in the firm I know has been a combination of disgust, bemusement, and resignation – not the actual kind, but the intellectual and spiritual kind, which is worse for a professional and for morale.
“1st years are going to get 1-1.5% increase from their base. No bonus (AIP).
2nd years getting promoted are going to get 2-6% increase. No bonus (AIP).
For seniors (and managers) who aren’t up for promotion: 1s and 2s – 1.5-3%. Those rated a ‘3’ are likely to get no increase.Annual Incentive Program –
If you are rated a ‘1’, $4,500, ‘2’ $2,000, ‘3’ for the most part (~50%) will get nothing but are up for a possible $1,000.New managers are going to start at approximately $80,000 with their raise. This is considerably lower than the average starting base of $92,000. No midyear adjustments. Also being discussed is the possibility extending the number of years before individuals are eligible for promotion to at least 3 years for senior’s and at least 6 years to manager, a change from 2 years and 5 years.. Deloitte partners are aware that new seniors are getting paid basically the same as 3-rated experienced seniors. The perception of those I spoke to is that experienced seniors who are 3 rated are angry because they’re performing as expected and getting the short end of the stick. In comparison all first years are likely to get a raise even though they are not that much more knowledgeable than a 2nd year. This jam-up is due to the fact Deloitte didn’t rescind the new hire offers in order to keep their edge on the recruiting scene and instead came back to them with lower salaries and sign on bonuses. One interesting comment is that there are still individuals within the firm that were rated a 4 – not meeting expectations, that may have been kept around to fulfil staffing requirements.
It looks like Deloitte will be short handed on seniors and staff this year given the recent cuts along with attrition that will result from the annual compensation. As the e-mail that was sent out above describes, those who remain will be asked to work harder and longer hours to make up for the difference. I was told that the number one and two driving factors for most people at this level is 1) the compensation 2) the dream of making manager and moving on… Something was also said on the call about shrinking in the upcoming year, but then the speaker would not comment on what this meant when those attending the call started asking questions. The speaker’s tone quickly changed into one of frustration at people’s questions and basically told them they are lucky to get anything in today’s environment while the competition is doing the opposite.
Since this reflects a call that took place in the northeast we can only imagine how it is for poorer performing regions.
Another source tells this story:
“I finished this past year with an overall 2 rating. I received a 4.5% increase in my own personal compensation. My office is considered a small to medium office (~100 professionals); however, prior to losing a big client and the recent layoffs we were much closer to 150.
The partner also told me that professionals receiving a 3 rating who were in a promotion year (at least at the senior level) would receive a 1.5-3% raise. But those receiving a 3 who were not in a promotion year would not receive a compensation increase this year. The firm strategically did not inform anyone on the staff of their compensation increases prior to the comp discussion for a reason. According to this partner, the firm decided that since so many individuals would not receive a raise in the current year, they would wait to disclose comp increases face to face. “
And to confirm my comments about forced ranking, another source gave this info:
“As for the “forced rankings,” there is definitely something to that. My peer group’s ratings were like this:
Of the total group as of six months ago,
14% individuals receiving a 2
57% individuals receiving a 3
28% individuals let go over the past 6 months.Another group (currently being promoted to 5th year senior) were rated like this:
17% individuals received a 2
50% individuals received a 3
33% individuals let go over the past 6 months.”
@Robert B – just goes to show how lame the accounting profession has turned out to be. With all the hours of schooling (for undergrad and perhaps grad school), plus all the skills we need to have “successful careers” that professors babble about, the hoops of fire you have to jump through to land a big 4 gig, the hours put in for that pesky test called the CPA exam, the hours demanded from us once were in the firms, and all the endless regulatory demands, you’d think our salaries will be comparable to those of ibankers, financial analysts, and the like…but nooo.
50k starting for someone with a masters and the CPA passed…shameful. I shoulda studied engineering.
@150, hahaha. A lemon with a new paint job!
In the good times, the partners rake in the dough, and staff are compensated 8-12%. In the bad times, the staff get laid off or have their compensation frozen, and partners rake in less dough. Who made all the bad decisions? Who is taking the risk? Sure doesn’t seem fair, does it?
My start class from 2008 is down to ~40% left (PwC)
Increased hours required for practice development + whole new auditing system + more hours (due to those who have already jumped ship) + low compensation = Get out while the employment iron is hot
At least Partner unit values are back up; which will make the D&T 3% raise on top of nothing the year before feel great.
D&T Manager Floor is $82K for 6 years working at the firm in NYC. Only a sucker, or a fool with no marketable skills, would accept those wages.
Agreed with 154 – and here in my large Midwest digs, the manager floor is almost 10K lower. As you say, “Only a sucker, or a fool with no marketable skills, would accept those wages.”
Deloitte, you will do those things you do with fewer people. I would have stayed for 3-4K more, and I know you’ll spend more to replace me. Imbeciles.
NO way!
audit manager nyc 82,000???
Disgusting, unprofessional at best
A kick in the you know what
82,000. Are you kidden me??????
it was 94,000, 2 or 3 years ago and thats a fact
It was 94K 3 years ago and thats a fact but has continued to decrease annually; while interesting the years required to make Manager have increased.
@49 -50: I left DT because of brats like U. You get a BSBA in accounting and think you deserve more than Doctor pay. 6 snot nose years out of college and you barely know your job. What kind of experience do you have but Jaerger bombs on mom & dads college fund replaced by Uncle Ds client expense accounts? Accounting historically was not known for being a lucrative career, but a solid career (Scrooge & Cratchit come to mind?). Accounting a lame career? Ha, You want excitement, join the military. Lucrative career? Try acting, sales, professional sports or med school. All known for being lucrative. I highly doubt any of you would be making anywhere near 100/yr had you taken any of those paths during the recession. Oh yeah that’s right worst since the Depression. D&Ts biggest problem is they’ve not demanded more out of the whipper snappers before admission to the modern partnership. Now there’s a generation of spoiled 30 somethings filling the jr partnership with the ideal of hardwork as delegating real work to the ill-prepared child staff via their black berrys. Also expended too much effort trying to be “liked” by gen y, appealing to the psychie not training them, forming them to become respectable practitioners.
@159, well said.
149, I hope there were other reasons you left than the ‘brats’ commenting here. Because you sound well suited for upper management. Your argument is about as sustainable as the current Big 4 business model. You get off track, because after correctly pointing out that many youngworkers are entitled and spoiled, you lump in a very real concern about pay.
Here’s why I think your point loses traction – you describe the profession as a “solid career” for respectiable practitioners, which isfine. But you then blame the younger employees, who have watched the partners’ share of earnings rise disproportionately,while the lower level staff do more work with less supervision, as you hint at. And even when you criticize the partners, it’s only the “spoiled 30-somethings.”
If anyone is to blame for the focus on money, blame the partners,even the fogeys who seem to be the last B4 employees you like. When you overwork smart, talented people (even those of us with lowly accounting degrees), there has to be some reason to stay. I imagine that drove your decision to leave as well, not just the brats.
D&T has plenty of big problems, and one of the biggest is that leadership simply thinks the younger employees aren’t “grateful.”
I think ex-dt3 may have missed my point. Look, all I’m saying is that public accounting pay is not commensurate with all the hours expected from us (unless you’re a partner as UDO pointed out). And don’t you tell me that PTO days make up for the low pay, because even if you’re on PTO you’re still chained to the firm via your blackberry. And especially in this economy where utilization is king, taking too many of your well-deserved PTO is frowned upon and could possibly place a bulls-eye on your back when leadership decides to roll heads. Umm so yeah…that’s what I find disappointing (and lame) about public accounting.
If pointing out what’s known to be true makes me a brat…ooooh well.
@161… Glad my reactionary comments are as sustainable as the Big 4 business model. Deloitte & Co. was founded in 1845. Solid evidence that it’s a sustainable model, firm and career. You, me the rest of us whinners visiting this site cause we left or want to leave will be long gone before the audit / consulting model crashes and burns. It’s a hierarchial fraternal model that forces you suck it up and stick around if you want to make it to the big payoff.
However, look at 162’s comments – public acct pay is not commensurate with all the hrs expected. Really? REALLY? Don’t think that individual knows how hard work can get outside public accounting and certainly didn’t pay attention to their accounting instructors. At a whoppinng 5 yrs out of school and the perception is it’s down to a disgusting 82k when white collar jobs are being elimnated on a daily bases nationwide. AND @161 thinx the partners don’t think you’re grateful.
Tell you what – show me the distribution of partner incomes compared to the minions from, say, twenty years ago, and compare them to the present. If there’s a disparity and partners have a larger piece of the pie, then it means either 1) partners are taking advantage of the ‘suck it up’ mentality moreso than in the past, or else that 2) partners are really just that awesome. And should be trying to get back to 2006 levels of compensation before paying newly promoted managers/whiners somewhere close to what they made four years ago.
By the way, revenue is flat or even increased in some regions. So life may be hard for the firms, but not as hard as they want you to think (except when they tell you your comp numbers). So spare us the lecture. Show me the data and we’ll talk.
P.S.- A British bank of (I believe) several hundred years was brought down by a 26 y.o.trader. Things change.
It would be beneficial if Deloitte paid different across offices. 82K would be great in the St. Louis or Portland office; but in the NYC office (with significantly higher cost of living) its not nearly enough to save money etc. It’s an embarressment and the D&T performance is comparable to the pay; which is why anyone with 1/3 of a brain no longer is around.
D&T is a shell of itself, but at least the overpaid partners continue to increase unit value despite doing next to nothing in regards to sales, thinking, generating new business. Anyone who believes otherwise is either a D&T Partner or an idiot.
ex-dt3,
You seem to be hung up on this 82K figure. With the cost of living there 82K in the New York City region is comparable to 52K anywhere else in the country, which is hardly a king’s ransom for a finance professional with “a whoppinng 5 yrs out of school”. Expecially when you consider the 70-hour work weeks during busy season.
You sound like my grandfather when he hears how much something costs today. “$2.25 to ride the subway? That’s outrageous! In my day you could get from Yankee Stadium to the Bowery for a nickel.”
I’ve never received more emails from D&T people leaving the firm. This place is indeed a lemon with a new paint job.
I always welcome the annual email I receive from Kevin McGovern (see above) this time of year to remind me to continue to overbill the client for a minimum of 50 hours a week, regardless of how many actual hours worked, or receive a notice from HR for non-compliance.
With the new extended busy season of 8 to 9 months, this should make for quite a basket of overbillings which will no doubt flow straight to the Partners.
Compensation Update:
Mid America Advisory (Technology Risk)
Rated 3 YE, 5.2% with 2% Bonus 5th year Senior
Anyone care to share what is going on with D’s tax practice in Dallas?
Deloitte begging people to stay due to mass defections. Now aggressively counter offering but everyone knows this place is an absolute disaster.
The only real strategy is to blatantly overbill and hope the clients dont notice along with the fact that most of the staff are almost incompetent (couldnt find a job anywhere else). Why the management Jim Q, Barry S. have not been replaced is beyond me.
Two more key leadership defections this week and staff morales continues down the cliff.
D&T Partners playing spin game that things are ok. “We’re the Yankees why would anyone leave.”
deloitte is apparently giving raises next week to audit staff in US to keep people??
i guess theres a mass running for the exits//
The Deloitte leadership should write a case study entitled “How to MisManage a Firm”. Deloitte would be a prime example and the Deloitte Partners first hand knowledge of how they mis-managed Deloitte; would be valuable so other firms do not make the same mistakes Deloitte has made.
Honestly, if I were a client of Deloitte, I would make a serious assessment of the audit relationship. The morale at Uncle D is so low, and people cannot wait to get out there. I don’t know how they can go through the coming busy reason. All the good staff/managers have left or on the way out. Even they could get in all the new hires on time, who will provide them with adequate training ? How could the client expect a firm like this to do a decent audit?
Any confirmation to the rumor of Barry Salzburg getting his stomach stapled in effort for DT to trim some of the fat?
Rumor of DT cutting hundreds of tax people (including partners) recently – can anyone confirm?
@71. .. wow , you nailed it — that’s EXACTLY how it was for me at PwC … back in 1989!