Former PwC partners share contingencies of £ 100 million
A group of former partners at PricewaterhouseCoopers, including one who now works at the industry regulatory, shared a £100m windfall payout this year after the accountancy and consulting company reported record profits.
About 1,100 former PwC partners collected an average of £91,000 in “annuity” payments in 2019, according to its annual report.
Among the beneficiaries was John Hitchins, who sits on the conduct committee of the Financial Reporting Council (FRC), the regulator for the audit and accountancy industry. Hitchins was a PwC partner for 26 years until he retired in 2014. Other ex-partners also hold prominent jobs on the boards of major companies, but PwC would not release a list of those who collected the payments or detail how much they each received.
Revelations of the huge payouts to former partners, first reported by the Financial Times, come at a time of intense public and political scrutiny of the industry after a string of accounting scandals including at the construction company Carillion, the cafe chain Patisserie Valerie and the department store BHS.
The competition watchdog has proposed a radical overhaul of the audit market that would force the “big four” accountants – which also include Deloitte, EY and KPMG – to split their audit and consulting businesses, with different bosses, management teams, accounts and pay policies.
PwC was criticised by the FRC in July for an “unsatisfactory” deterioration in inspection results for its audits of FTSE 350 clients. Earlier in the year MPs criticised PwC for “milking the cash cow dry” after it charged £44m for a year’s work as special project managers on the administration of Carillion.
A spokesman for PwC said it was standard practice for accountancy and law firms to pay their retired partners a share of ongoing profits. However, PwC’s rivals are paying out much smaller amounts: KMPG is expected to pay £4m this year, and EY £6m. PwC’s £100m payout works out at about 10% of its £1.08bn profit for 2019.
The average payout of £91,000 works out as three times the average UK salary, according to the Office of National Statistics (ONS). The former PwC partners, who could retire as early as 53, shared out £97m in 2018. They are not part of PwC’s standard retirement pay scheme.
A PwC spokesman said: “Approximately 1,100 former partners receive annuities payments. There are rules within our partnership agreement which determine how the amounts are calculated and the period of time over which they are paid.
“Our partnership agreement requires former partners to comply with requirements we have in place for establishing and maintaining the firm’s independence in relation to clients and others, and this includes notifying us if they are considering taking on roles at an audit client. PwC complies with the auditor independence rules in the UK which say that if a former partner accepts a management position at an audit client then it’s necessary for the firm to ensure there is not any ongoing significant connection between the former partner and the firm.”
A spokesman for the FRC said: “In line with long-established FRC procedures John Hitchins does not participate in any decisions regarding PwC at conduct committee.”
Luke Hildyard, the director of the High Pay Centre, a thinktank that examines excessive pay, said: “After the aftermath of a succession of accounting scandals and corporate failures, there are justifiable questions about whether firms like PwC should be dedicating more rigorous analysis to their audits involving more experienced staff. That would be a better use of their resources than spending millions of pounds on payouts for retired partners.
“The lavish pay practices of the audit firms highlight the self-enrichment culture of an industry that is supposed to fulfil a critical corporate governance function. Audits carried out by public servants with a public service ethos and a remit to look beyond narrow financial measures of company performance to social and environmental considerations would be a far more cost-effective model for the industry, more closely aligned with the public interest.”