KPMG cuts partner and CEO pay as costs and uncertainty weigh on firm

The professional services giant has seen a ‘real shift in sentiment’ as it flags a slowdown in spending on audit and consulting, and a doubling of staff complaints.

Audit and consulting giant KPMG Australia has slashed partner pay and trimmed its chief executive’s benefits amid a slowdown in professional services spending, after posting a 9.1 per cent annual lift in total revenues across the firm to $2.55bn.

Revealing the result on Wednesday, KPMG chief executive Andrew Yates said the year had proved challenging, with a “real shift in sentiment” hitting the firm in the second half of the financial year.

“The months after Christmas were noticeably different to the months before Christmas, in the last four months we had all the focus on the profession, which made that environment challenging,” Mr Yates told The Australian.

In response to the profit squeeze, equity partner incomes took a hit, down 3.9 per cent to an average $700,000.

This is compared to the average $750,000 payout to partners last year.

Mr Yates also saw his pay slashed by $600,000 to $2.2m, down from $2.8m last year.

Alongside its results, KPMG also revealed an almost doubling of complaints made by members of the firm as part of its end of year insights.

KPMG boss Andrew Yates. Picture: Jane Dempster

The audit and consulting sector has been under immense scrutiny after KPMG’s rival PwC Australia faced public ire over the firm’s misuse of confidential government tax briefings by its tax practice.

Meanwhile, revenues at KPMG’s audit arm surged 4 per cent in the year, hitting $671m.

The management consulting arm saw revenues soar 12 per cent to $745m, but missing KPMG’s internal targets.

Enterprise revenues climbed 23 per cent to $361m.

Infrastructure, assets, and places revenues were up 22 per cent to $200m, while deals, tax, and legal revenues fell 2 per cent in the year to $401m after markets went quiet in the face of higher interest rates.

‘We’re still winning work’

But the rising tide of revenues at KPMG have been matched by a lift in spending on staff, partners, new offices and businesses.

Mr Yates said the year started strong, as the Australian economy came out of the Covid-19 pandemic period with “huge pent-up momentum”.

But he said KPMG was seeing the impact of inflation and interest rates weighing on spending by business clients.

“We started to notice not so much a reduced demand but a slowdown in clients being willing to engage the firm, it was taking clients longer to have confidence in what they wanted to do,” Mr Yates said.

The federal government has flagged plans to slash government spending on the big four, which raked in almost $2bn in government contracts in the 2021-2022 financial year.

Mr Yates said there was “obvious uncertainty” around KPMG’s engagement with the public sector, but said “things feel pretty normal at the moment”.

“We’re still winning work,” he said.

“The message we’re putting into our firm is we have to be very, very focused on putting our credentials forward in the work.”

Mr Yates said the trouble around PwC had seen KPMG prepare to pick up some work from the audit and consulting heavyweight, but he noted it was “not to such a dramatic level that people might expect”.

He said KPMG was also seeing approaches from PwC staff and partners, but said “again not quite as dramatic as people think”.

“The whole profession are waiting to see how the whole thing plays through,” he said.

Partnership refresh

PwC has sold off its government consulting business to Allegro Funds in a $1 deal.

The business, set to be renamed Scyne Advisory, will not be organised as a partnership like KPMG or PwC and will instead use an ASX-like corporate model.

Mr Yates said the partnership model still had “many great things” it could offer, but said there were “valid questions” around whether it was fit for purpose.

“It’s less about the mode and more about the transparency that comes,” he said.

KPMG noted in its results the firm had “refreshed” its confidentiality agreements in March this year, in the wake of revelations around PwC’s misuse of confidential information.

Mr Yates said the firm was conscious of what was taking place at rivals, but said he thought KPMG had a more open and accountable governance structure than PwC.

“We have independent directors on our board so from a governance point of view there is an oversight on the executive which we think is a good governance model for a partnership,” he said.

In an email to staff on Tuesday, Mr Yates said KPMG “don’t always get it right”, acknowledging the firm’s issues around the NSW Government’s Transport Asset Holding Entity and cheating by staff on ethics exams.

But Mr Yates pushed back on media reporting around the firm’s work with Defence and the Australian Signals Directorate.

Staff complaints

Alongside its results, KPMG revealed a tally of workplace conduct complaints made by members of the firm, which soared to 142 in the 2023 financial year to 1.24 complaints per 100 staff.

This was up on the 88 reported to KPMG last year, or 0.66 complaints per 100 staff.

KPMG closed 131 of the 142 complaints made by staff in the year, of which 84 were substantiated.

Of the 15 sexual harassment complaints made by staff, KPMG substantiated eight, with the firm saying “one in two substantiated harassment complaints ended in the subject of the complaint exiting the firm”.

Rival firm EY Oceania has faced a year-long review into its culture by former Sex Discrimination commissioner Elizabeth Broderick, which found issues of overwork and burnout along with a culture that saw many staff feel unable to speak out.

Mr Yates said it was clear the broader audit and consulting sector faced similar challenges.

KPMG’s scorecard warns the firm had made insufficient progress in its goal to deal with staff feeling they can “sustain the level of energy I need to do my work”.

Mr Yates said dealing with issues of overwork was a “complicated problem”.

“We’re always trying to work out how we can manage our work through the year,” he said.