99% of KPMG's employees accepts 20% voluntary pay cut

22 May 2020 Consultancy.com.au 4 min. read
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Nearly all of KPMG’s staff in Australia have accepted a controversial temporary measure – earning 20% less while working the same number of hours – in a move that is designed at softening the Covid-19 hit and safeguarding employment at the accounting and consulting giant.

Amid the fallout of demand sparked by the Covid-19 pandemic, KPMG has seen lines of business dry up globally. In Australia, where KPMG has around 8,000 employees across thirteen offices, generating to the tune of $1.8 billion, the situation is no different.

As part of plans to weather the storm, companies of all sizes are cutting on their discretionary spend, including the hiring of external consultants. The pause or full cancellation of projects is hitting KPMG’s Advisory arm, and similarly, a lower merger & acquisition appetite means that KPMG’s dealmakers are also seeing their sales funnel dry up.

The firm’s audit wing is the most resilient to the covid-19-induced crisis, in particular its work for large corporates and listed companies, as a large chunk of these services is essential for financial closing and legal annual reporting requirements.

Across the board, demand for professional services is estimated to fall by between 15% and 20% this year (a global estimate), and in sync with its Big Four counterparts, this has prompted KPMG to act. A first round of response measures saw the firm fire 200 professionals in areas “where business has dried up considerably”, said CEO Gary Wingrove in an internal memo in April.

Voluntary reduction in salary

Shortly after, Wingrove also announced that KPMG would implement a far more wide-reaching cost cutting measure – slashing the pay of all its employees for a period of four months. The firm put forward a plan that requests staff to accept a 20% pay cut between May and August, the equivalent of a 7 per cent annual pay reduction.

While the move goes against workplace rights (as the generic measure has no commensurate link with lower workload) and staff therefore had no obligation to accept the offer, Wingrove said the measure was needed to help the firm “address the economic challenges that no doubt all organisations, including ours, face in the coming months,” as well as safeguarding the jobs as much as possible.

Despite facing had no obligation to accept the offer, the proposal has been very well received by KPMG’s staff. Reporting by Australian Financial Review reveals that, in a video sent to all employees this week, Wingrove confirmed that nearly all employees have accepted the offer, praising their commitment and dedication to the firm. “I think that is an outstanding contribution by all of you,” he said. Less than 50 employees – or 1% of the workforce – have rejected the offer.

Partners meanwhile have accepted to take a bigger hit, with their effective pay reduced by up to 36 per cent for the four months. On top of this, equity partners – who own the privately-held business – face further possible downside risks.

More resistance elsewhere

Meanwhile, in other countries, similar attempts by large professional services firms have been less successful, especially in countries with stringent employment laws. Aon’s case is most illustrative: the firm’s chief executive Greg Case last month called on all of the firm’s 50.000 employees globally to accept a temporary 20% pay cut, but while ‘successful’ in the US and Canada, in markets such as France, Germany and the UK, the measure sparked widespread criticism.

Legal experts, labour unions and even politicians joined in on the conversation, slamming Aon for putting its finances ahead of staff wellbeing, exacerbated by the fact that the US listed company enjoyed a $1.5 billion profit windfall last year on global revenues of $11 billion.

Facing good times, KPMG Australia has been on a roll off late. Last year, the firm booked its sixth consecutive year of growth, and over this period, average partner income is estimated to have been between $500,000 to almost $2 million per annum, meaning that KPMG’s coffers and partner accounts linked to the firm are beefed up.

In the light of the unpredictable future, the good news for KPMG Australia’s staff is that if the pandemic’s impact turns out less severe than thought, the firm will seek to repay staff, prioritising paying money back to staff over partners in the process.

Deloitte Australia, which recently closed its offices for a full week to curb costs, has taken a similar measure of cutting pay without cutting hours. Rival Big Four firms EY and PwC are implementing larger reductions in staff hours, up to 40%, but are keeping pay in line with hours.