How Public Accounting Needs to Change
Many industries in the United States are facing a workforce shortage, and public accounting is no different. In fact, public accounting has some unique factors working against it that are keeping people from starting or continuing their careers in public accounting. In my opinion, these factors are what needs to change to attract and retain talent in 2022 and beyond because the old model of public accounting does not work well enough to function as it did in decades past.
Before I share the specific ways that public accounting needs to change, it’s important to understand some of the general workforce pressures that also contribute to turnover in all organizations that are an important part of the fight to attract and retain talent, but are not uniquely different in public accounting. In my opinion, the most important of these are:
Pay relative to cost of living (See this blog for more information on why people cannot afford housing or retirement) ) - Companies should be paying people enough to live comfortably in the area they work. Depending on where you work and live, the difference between your pay and the cost of housing, food, and other living expenses can vary from “living comfortably” to “barely getting by.” While this has been coming up as a topic of conversation for entry level public accountants in recent years due to increasing costs of housing, it’s an issue that is not unique to public accounting.
Paying to attract, not to retain - While public accounting has a generally good raise and bonus cadence at most firms where promotions and pay raises are built into the firm models, many firms will still pay more to attract new employees compared to what a current employee is paid. Unfortunately, this type of compensation and budgeting is not unique to public accounting and is something that many companies do.
Both of these pressures can be large contributors to employee burnout because working while being paid less than what you need to live the life you want, or just less than what you are worth, make it incredibly easy to lose drive and focus on the job. But what about the parts of the job that are more specific to public accounting? Let’s take a look at those next:
Working Hours / No Overtime
In the traditional service lines of audit and tax, extra overtime hours are built into the expectations of the job because of busy season. While these hours are a great way to learn in the first few years of your career, working that much is not sustainable for many down the road. Personally, I didn’t mind the work of auditing that much, but the hours expectations were weighing on my mental health as time went on. Any firms that build in overtime pay for this time and/or limit the standard working expectation to a more “standard” amount of hours will be able to attract a huge talent pool of people who don’t mind the work, but also don’t want to deal with long hours.
Job Staffing
Anyone who has worked in public accounting in the last few years will probably tell you that they experienced some form of understaffing. Understaffing can take on many forms, including:
Not having enough people to service a client
Having too many clients going on at the same time (and not having the bandwidth to appropriately service all of them)
Not having the right people or skills available to service a client or set of clients
When a firm is understaffed, the existing employees are expected to pick up the slack (usually with no significant pay increase) and go above and beyond. While this can be a great learning experience for some who need some extra experience, the extra responsibilities become a huge burden for anyone else. Solving understaffing is a complicated issue that involves staff scheduling, client acceptance, and partner profit margins, among other things. Firms that are able to staff their jobs appropriately without overloading the staff with stress or responsibilities will attract the best talent.
Pay and Firm Transparency
CPAs work with businesses all the time and tend to have a good understanding of how a business operates. This means that public accounting firms need to be especially considerate of how much information they share with their employees. In a super competitive labor market like the one we are seeing now (and will probably see for a long time due to expected CPA shortages), competitive pay and pay transparency is more important than ever. In an industry where many employees are expected to put in extra effort, it's especially important to be clear on how that effort is to be rewarded. Accounting firms have many different ways to evaluate firm and employee performance, including:
Utilization % / Billable hours
Realization %
Performance evaluations
Client feedback
Achievement of goals
And many more!
None of these metrics are perfect and each has their own best use case. But when it comes to pay and promotions, there is usually some mix of these metrics that influence those decisions. Many employees, including myself, can get understandably frustrated when they realize that one of their co-workers is earning a larger salary or bonus without a clear understanding of why that is. In the coming years, the best firms will give their employees the proper insights into firm performance and provide clear outlines for compensation so that everyone can work together for a better result (instead of having a pissing contest over who has the most billable hours).
When I was taking notes for this blog I had the working title of “Public Accounting Pipedreams” because some of these pain points have historically been a part of the public accounting model and not many would even consider doing things differently. But that public accounting model, which has been described as: “Sink or swim,” “Churn and burn,” “Up or out,” and “Train the best, keep the rest,” is going to need to change with the changes in the labor market for experienced accountants and CPAs. The question is: which firms will be the first to make changes like these and attract the best talent? Only time will tell!