Scrapped PwC retirement benefits riles partners

Sharing the wealth will no longer be available to newly retired partners.

A decision by PwC to do away with its lucrative retirement benefits scheme for partners in the wake of its government leaks scandal could encourage some of its best rainmakers to part ways with the company.

But if it remains in place, there are serious questions about whether the top four accounting firm can afford the payouts to former partners no longer employed with the business, and whether a cultural shift can happen if it still exists.

It’s a dilemma now in the hands of PwC’s top decision-makers from offshore, who seized control of the financial services firm at the weekend to protect its global reputation after it became embroiled in a scandal involving leaked confidential information about Australian government tax changes to its corporate clients.

It’s also the talking point among PwC partners still at the firm.

The way PwC’s retirement benefit scheme works is where any partner who has worked at PwC as a partner for at least seven years is entitled to a share of 20 per cent of the firm’s annual profit once they have retired.

If the firm makes a loss the payment is zero, but the scheme is highly lucrative for retired partners in the years when large profits are generated, say sources.

While doing away with the scheme may be seen as the right thing to do, it leaves those who have worked hard for the firm in recent years losing out in their retirement and being unable to share in the benefits of those who went before them.

Those PwC government consulting partners joining Allegro Funds – as part of a sale of the unit for $1 to the private equity firm – are believed to be taking legal advice over what they are entitled to from PwC ahead of a move to the newly rebranded business Bell.

Sources say that PwC is keen to retain its Business Restructuring Services, Mergers and Acquisitions and Transaction Services, as they are large revenue generators, although government consulting (now with Allegro) was highly lucrative and generated about $500m of annual revenue.

But the partners in those units may have other ideas, particularly if the retirement benefits scheme is not in place, and the understanding is that many are keen to find a home elsewhere once the dust settles and they gain a clearer picture of the firm’s future.

Restructuring services often generates more revenue for firms like PwC proportionately than other units, and a break away from that part of the company could enable partners to see a greater share of the profit.

Government work accounts for about 20 per cent of revenue for the restructuring unit, and while government contracts are in place, it is unlikely to be the case in the future.

While PwC contracts prevent partners leaving en masse, they could stagger their departures.

DataRoom understands that under the current payment structure, PwC enables partners to retain about 80 per cent of their annual target income, but they may be entitled to a bonus payment in addition to that at the conclusion of the financial year.