Accounting Firms Must Do More Than Make One-Time Salary Bumps

Ernst & Young’s plan to increase starting salaries by 10% still isn’t enough to be competitive in the current marketplace for early-career accountants. Accounting and auditing firms need to go the extra mile to bring students back to the profession.

The extra mile would require raising salaries above other business fields instead of only matching them. It also would require a commitment to work-life balance and limiting hours during busy seasons, even if that means needing to hire even more staff. And it would include providing funding and/or bonuses for students who obtain the extra 30 hours of college credit required for CPA licensure.

It’s refreshing to see firms such as EY, KPMG, and PwC acknowledge how the profession has lagged its peers by boosting salaries. But it’s just as concerning that it has taken almost a decade of declining enrollments, staffing issues, and talent drain for firms to take dramatic action.

Despite data indicating that students perceive salaries to be a barrier to them when considering the profession, firms have held to the long-term value proposition accountants receive if they reach management roles and have largely refused to raise salaries.

This intransigence has come at a time when even prominent investment banks, law firms, and consulting firms have raised starting salaries to attract the talent they need. Accounting firms, while late to the game, are acknowledging what their competition for talent did years before.

Accounting firms see the salary bumps as placing the firms as “market-leading compensation,” but data tells a different story. Median accounting salaries have been negative in real terms over the last decade, while fields such as financial analysts and marketing specialists have seen their real wages—raises beyond the rate of inflation—rise 5% to 7%.

The proposed wages are a good start but don’t put accounting firms ahead. They can’t match the starting salaries for other business majors—they must exceed them. Firms need to compensate accounting hires for the added education, work hours, and skills they demand of new hires.

Accounting is the only business major that has strict licensing requirements that require a four-part exam with an approximate 50% pass rate and an extra year of higher education. Firms don’t ask students when they are graduating; they ask them when they will be CPA eligible.

Accounting students must go to school for longer, take a difficult exam, and work busy-season hours. The pay raises would be competitive if accounting was like other business fields. But it isn’t.

Firms require more out-of-pocket investment from their entry-level accountants. To attract more of them, salaries need to be high enough for accountants to recoup their investments.

Determining whether today’s actions are a one-time minor adjustment or a sustained commitment to improve accounting’s attractiveness is the bigger question. It will take time to know the answer.

EY’s announcement doesn’t specify how much of the approximately $1 billion will be distributed, or if future classes of new hires can expect to see similar wage increases. A one-time adjustment would just be a continuation of the status quo—basic window dressing.

If it’s a long-term strategy, we may see pipeline improvements in five to eight years. That is the timeline it would take for high school or underclassmen college students to observe the increase, elect accounting, and enter the CPA pipeline. It is too late for students already in college because they have already started taking classes in their selected discipline.

And here lies the ultimate difficulty for firms in 2024. Salaries have been uncompetitive for long enough that this perception is well-established among students entering college.

A one-time increase won’t change that. Students often decide their major before arriving at college; others decide their first year or two. Today’s increases will affect students who will be CPA eligible in 2029 or 2030.

Even then, they will want to see that the pay remains competitive over the coming years and that firms are willing to pay them for the requirements to meet CPA eligibility.

The 10% raise for students already committed to a firm won’t change the pipeline, though it will certainly make the new hires happier. Pay increases must continue to be higher, longer lasting, and must represent a shift in the compensation strategy.

And if they aren’t? The pipeline challenges and talent crunch will remain. Students are willing to work hard. Eventually, they’ll stop wanting to do so for the same pay they can receive in a field with lower barriers to entry and fewer hours. Plans such as EY’s can’t be the finish line.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

Author Information

Jack Castonguay is a CPA and an assistant professor of accounting at Hofstra University and vice president of content development at KnowFully Learning Group.

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