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Why Is Utilization Such a Big Deal at Public Accounting Firms?

As it’s only been a few days since we learned about the death of Pan Jie, the PwC auditor who died in Shanghai, many people are questioning everything, from high pressure culture within the Big 4 to this most recent contribution from the mail bag wanting to know why utilization is such a BFD:

Hey Caleb,

Been reading all the comments on the Shanghai PDub girl perhaps overworking to death, and everyone seem to have the same opinion on the same thing: overworking, but undercharging. And, this topic of utilization has really been troubling me since the first day I joined public accounting. So can someone care to explain why utilization is such big deal at the Big 4s??

I really don’t get it. Because ultimately, in my opinion it is purely a [key performance indicator] that is on paper, and is not a real depicting of a company’s financial performance. From when I last checked, the concept of OT pay is no longer applicable. So it’s not like by charging more hours, the firms are not paying me more and thus impacting their bottom line. Of course, if I need to bring on more people to the team to complete the audit, it may impact the bottom line for that engagement. And, also maybe there are the out-of-pocket expenses that you need to consider for employees beyond 8 hours. But I am sure [out-of-pocket expenses] during busy season will not break for audit budget. But besides that, everything is pretty much fixed, from the audit fee, staff’s salaries, expenses, etc. So I really don’t get this utilization game that management is playing.

Is my mind too simple, or can someone explain it to me?

Here’s my take on utilization – it partially factors into how firms determine if they’re getting their money’s worth out of employees. Say you’ve got two employees that are effectively the same (hours, performance, etc.) except one takes all five weeks of their PTO while the other doesn’t take any PTO. The difference of two hundred hours – on paper – shows that one employee is one creating 200 additional hours of value for the firm versus their co-worker who does not. If both of these individuals met their utilization goals for the year, then there’s really no issue. But if the five weeks of PTO taken by the first employee causes them to fall short, a friendly HR professional or performance counselor will have an easy decision as who should be crowned a top performer at evaluation time. Regardless of firms saying “we want you to take vacation” they want you to meet utilization goals first.

As for budgeting, depending on the engagement you may have wiggle room and you may not. If you’re serving a small client, regular late-night dinners could easily blow the budget and zap the realization, especially if you’re billing all the hours you’re working. So if you’re trying to make utilization goals but have a tight budget, you may have to cave on either charging all the hours or starving to death. Not an easy choice and is one reason why serving small clients can be a double-edged sword.

So essentially I agree with you, utilization is primarily a performance indicator and not much else. It simplifies the ability to determine someone’s value on paper. Low utilization indicates that you suck at your job or no one likes you. High utilization means you’re a workhorse and a team player. When it comes to cutting the weakest link, the decision is pretty easy. I admit that I’m far removed from the latest trends in determine valuable employees so veterans of the utilization game and people in the know are invited to chime in with theories on utilization and its usefulness (or lack thereof).

Big 4 Manager Needs Help Determining If He Is Underpaid

Welcome to the squelch-the-tryptophan-withdrawals-with-cyber-Monday edition of Accounting Career Conundrums. In today’s edition, a Big 4 manager is pret-tay sure he is underpaid. How can he broach the subject with a partner without causing major blowback?

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Back to our short-changed manager:

I was wondering if you could provide advice in how to determine if I am being underpaid and if I am how to go about asking for an increase? I am a 1st year Manager for a Big 4 firm in Kansas City. I have been with the same firm/office my entire career sans a 2 year secondment I completed in Dublin just in August. In addition, to having my CPA license I also hold the CFE certification and the CFA charter.

My feelings for asking for a raise are based on the additional certifications and knowing that my salary as a 1st year Manager is less than what 3rd year Sr. Associates were making in my office 2 plus years ago. I know the economy has changed during the subsequent 2 years but still feel like I am not fairly compensated. What advice do you propose? I am nervous about sharing my thoughts with my Partner as I am afraid of a potential backlash. Thanks in advance.

Dear Alphabet Soup,

Think you’re underpaid, huh? Seems to be theme around here. However, your situation is more unique than most so we’ll make a run at this.

First thing we noticed about your situation is that you’re a M1 which means you were recently promoted, which also mean you should have just received a better-than average raise. And we’re more than a little skeptical about your assertion that a SA3 is making more than you. That would have to mean that SAs are getting insanely good raises while you – the newly promoted manager – got an abysmal one; it seems unlikely. If this in fact the case, then you’ve had a serious string of bad luck.

As for determining whether or not you are underpaid, we suggest you speak to a professional recruiter in KC to find out whether or not your credentials and international experience or currently undervalued. If the recruiter takes a look at your résumé and starts drooling, you’ll know that he/she can earn a fat commission placing you somewhere else. If they shrug and say, “Look friend, you’re doing pretty well. But let me tell you about this great opportunity…” then your salary is probably fair.

When it comes to talking to a partner about this, be sure you’re speaking to someone you trust and just be honest. Make your case with facts. Don’t go speculating about what a SA3 is making because that turns the conversation to something that is out of your control. Highlight your credentials, international experience and why they bring value to the firm and your partner.

They’ve heard the “I’m underpaid” sob story a million times. You’ve got to prove to them that your case is an exception to the run-of-the-mill bellyaching.