Big 4 accounting firms grapple with rising labor costs amid industry downturn

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Korea's four major accounting firms — Samil PwC, Samjong KPMG, Deloitte Anjin and EY Hanyoung — have scaled back promotions of accountant partners amid an industry downturn, government data showed Tuesday.

As firms grapple with weaker profitability due to the ongoing economic slowdown, the burden of rising labor costs is cited as one of the main reasons for the declining promotions since partners would typically receive significant pay raises.

However, while promotions for certified accountants have declined, companies continue to elevate experts in nonaccounting fields such as environmental, social and governance (ESG), suggesting a strategic shift toward business diversification, according to industry officials.

Data from the Financial Supervisory Service (FSS), submitted to Rep. Yoo Yeong-ha of the main opposition People Power Party, shows that the four accounting firms promoted 72 certified accountants to partner positions for the 2024 fiscal year. This marks a decrease of nine promotions, or 11.11 percent, compared to the previous year.

Partner promotions had been steadily rising over the past few years, from 72 in 2020 to 74 in both 2021 and 2022. Notably, the figure reached 81 in 2023 despite economic headwinds.

The accounting firms have been struggling with profitability as the audit market stagnates and workloads shrink across the industry. Against this backdrop, some have scaled back partner-level promotions to ease the burden of rising labor expenses.

Becoming a partner typically comes with a sharp pay raise, along with the opportunity to buy equity in the firm, granting them a say in management and access to profit distribution. Some are also given perks such as a company vehicle and a personal driver. For accounting firms, these promotions represent a notable increase in personnel-related expenses.

"Some accounting firms have recently reduced the number of partner promotions to around 10. In such cases, this should be seen as a very conservative promotion strategy driven by declining revenue," an industry insider said.

However, she emphasized that if the decrease is only by one or two rather than by 10 or more, the focus should be less on the numbers themselves and more on business diversification and expanding expertise.

According to the FSS data, while the number of accountant partner promotions decreased last year, the figure for other partner promotions increased from 21 to 22 during the same period.

"If the reduction in accountant partner promotions is around one or two, it is not a significant change. Instead, attention should be paid to the growing trend of promoting experts from various fields such as tax accountants, lawyers, consultants and ESG specialists to partners," the insider said. "Since the audit market is already stagnant, firms are diversifying their talent pool to grow their nonaudit services."