KPMG’s UK partnership shrinks to smallest in two decades

KPMG has slashed the size of its UK partnership to the lowest level in at least two decades as it followed up a wave of partner exits with a miserly promotion round, leaving a larger share of future profits for those who remain.

The number of UK partners at the Big Four accounting firm has fallen by 12 per cent from 571 to 502 in the past year. The drop is the result of the exits of 94 partners last year, a far larger number than normal, and the decision to hire or promote only 25 in their place.

The reduction is the second large-scale cull by KPMG in less than four years following the axing of about 65 partners in 2019 when then-chief executive Bill Michael attempted to cut costs and improve profitability after partner numbers peaked at about 650.

This year’s changes leave the total number of partners at its lowest level since KPMG began in 2002 to disclose the average number of partners each year.

Limiting the number of equity partners, who own the firm and share the profits, increases average partner earnings, a key metric by which leaders of Big Four firms are judged internally. Such a reduction is a double-edged sword because maintaining a realistic prospect of promotion to partner is an important way for firms to incentivise rank-and-file staff to remain loyal.

KPMG denied that there had been “a programme to increase the number of people leaving the partnership. The number of partners leaving or retiring naturally varies year on year.”

The 16,000-person UK firm remains the smallest of the Big Four accountants and its partners are paid less than those at rivals Deloitte, EY and PwC.

UK chief executive Jon Holt has been aiming to boost profits, which have lagged behind those of competitors. The squeeze on partner numbers will also help to offset the short-term loss of earnings from a plan by Holt to withhold £300mn for future investment.

KPMG partners received an average of £688,000 in the 12 months to September 2021, the highest since 2014 as profits across the professional services sector boomed.

Holt, who took over last year when Michael resigned after telling staff to “stop moaning” about working conditions in the coronavirus pandemic, has also been attempting to restore KPMG’s reputation following a series of scandals at clients including outsourcer Carillion, bedmaker Silentnight and alcohol retailer Conviviality.

Along with the departure of one in six equity partners, the fall in the numbers was driven by KPMG’s introduction of a new tier of salaried partners, who hold the title of partner but do not share in the profits of the business. This followed a similar strategy of title inflation that Deloitte pursued several years ago and which has more recently been replicated by EY.

The change in effect lengthens the track to equity partner by increasing the number of promotions needed by auditors and consultants before they can become owners of the business.

KPMG hired or promoted 130 senior staff to the role of salaried partner in the past year, many of whom would have been likely to become equity partners under its previous structure.

“It’s difficult to make a comparison with last year, given this is the first year we introduced salaried partners,” said KPMG, adding that future partners would progress through the new structure over time and that the new system would result in a fairer, more consistent pay model.