Big cuts at the Big Four accounting firms

Ernst & Young Australia cut 89 jobs this week, in its fourth round of redundancies since January.

The Australian Financial Review reports rumours that partner performance is being reviewed and may result in further lay-offs  within weeks.

About 20 human resources and finance jobs were cut earlier this year due to outsourcing, but it is unclear whether outsourcing or simply a general downturn in business activity has motivated the current retrenchments.

Most of the large accounting firms have employed cost-reduction strategies this year, including PwC, who cut 211 jobs in May. Deloitte has also trimmed headcount, but, along with PwC, is now hiring again in certain divisions.

KPMG also scaled back staff this year and is reportedly conducting structural and headcount reviews across the business. A senior headhunter, who asked not to be named, says: “There may well be some reductions at the conclusion of this process but that it is unlikely to be in large numbers.”

Are partners at risk?

The Big Four retrenchments are mainly targeting senior managers and directors – most firms are overstaffed at this level. Ernst and Young is rumoured to have recently gone through an internal restructuring of its executives, weeding out those on a confirmed partner track from those not generating enough fees. The latter are viewed as an excessive overhead and may be in line for redundancies.

“I am not aware of retrenchment among partners yet,” says an executive recruiter. “But those not producing will be under pressure right now. We may well see a squeeze among the partners of one or two years.”

There may also be cuts across support functions as well, says the headhunter. “Juniors are quite thin anyway, so there are unlikely to be many cuts below senior manager.”

Although the recent retrenchments appear to be across all divisions, it is likely they will focus on tax and middle-market divisions, like corporate finance and advisory. “The Big Four are increasingly returning to their traditional core business functions such as audit,” says the recruiter.

There have also been suggestions that Ernst & Young Australia may have been forced to forgo profits as revenue generated locally would contribute to a common profit pool for Asia Pacific. However, a spokesperson for the firm told the AFR that while the firm does not share profits with the region, the way staff are evaluated and compensated has been revised to account for contributions to regional growth.