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Deloitte’s employees took home a bigger share of the accounting and consulting firm’s revenues in the US in the past year, reflecting pay increases meant to retain staff that squeezed profit margins, new figures show.
Pay and benefits for staff accounted for 55.4 per cent of revenue in the financial year ended June 3, the highest level in the eight years that the firm has been publishing the number, according to its latest transparency report.
As recently as 2019, less than half the revenues of Deloitte US went to staff remuneration.
The figures lay bare a shift inside the Big Four accounting firms since the coronavirus pandemic, which unleashed a wave of demand for their consulting services from corporate America but also prompted staff to reconsider whether the long work hours were worth it.
The result was a battle to hire new staff and retain critical personnel using higher salaries and bonuses, which has weighed on the bottom line as demand for some consulting services has returned to normal or even shrunk.
Now, pressure on profit margins has led the Big Four to seek cost reductions.
Deloitte has resumed the tough annual performance reviews that it and other firms used before the pandemic to push out unwanted staff. It has also announced lay-offs, including a round in April that affected at least 1,200 people, concentrated in the financial advisory business that has been affected by a decline in merger and acquisition activity.
“We are in a dynamic time for the consulting industry,” Deloitte told the Financial Times, adding that the firm had been “investing heavily in our workforce, both during and after the pandemic’s talent marketplace shifts”.
But it added: “Based on moderating growth and very low levels of voluntary attrition, we are taking modest personnel actions where necessary.”
Deloitte’s push to retain essential staff was more successful in the US than in its European or Asia-Pacific businesses, according to Monadnock Research, which monitors the consulting profession. In its 2022 financial year, employee turnover was 20 per cent in the US, versus 25 per cent or more elsewhere, Monadnock said.
“While retention strategies were effective in many cases, those salary increases continue to have a negative impact on service margins today in markets where demand tempered in the second half of 2022 and in 2023,” said Mark O’Connor, Monadnock’s chief executive.
“This is particularly true for some US practices where service demand has decreased more than in Europe.”
Deloitte’s US staff swelled from 65,000 to 80,000 between mid-2021 and mid-2022.
According to Management Consulted, which coaches graduates on getting a job at the Big Four and other consulting firms, Deloitte pushed up starting salaries significantly. An MBA student who joined Deloitte Consulting in 2020 could expect to earn $173,000 in the first year, it found, while a 2022 hire could expect $204,000.
Revenues at Deloitte US rose 17 per cent to an all-time high of $32.7bn in the year to June 2023, the firm’s transparency report shows. The consulting business accounted for a record 54.4 per cent of those revenues, but a smaller percentage of earnings than in any of the past eight years, at just 22.8 per cent.
In the same period two years earlier, boosted by demand for digital transformation services after the pandemic, consulting contributed 52.5 per cent of revenues but 31.2 per cent of earnings.
Deloitte US does not disclose a dollar figure for its profits.
