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PricewaterhouseCoopers Lets Out Family Secret!

PricewaterhouseCoopers Lets Out Family Secret!

urday, March 24, 2007

We see from David Reilly from the Wall Street Journal that PricewaterhouseCoopers has revealed one of its longest and best-kept secrets?

How much money do PwC partners really make?

This happens to be a WSJ and a Big Four first!

It is the first time that any of the Big Four firms have publicly stated how much money in aggregate is paid to the partners. For PwC US, it appears that between $1.0 and $1.4 billion is paid to the US partners of a total revenue of $6.9 billion in the fiscal year ending June 30, 2006, as publicly stated by Dennis Nally, the firm’s chairman in an interview to Mr. Reilly.

So let’s do some math here:

PwC reported only revenue numbers when it released its 2006 financials (year ending June 30, 2006) about 6 months ago. Total firm revenue was $22 billion and global partnership was 8,280 partners giving a revenue per partner ratio of $2.66 million.

PwC also said that 26% of its total headcount was in the Americas – let’s just apply that to the 8,280 global partners to find the number of Americas – 8,280 * 26% = 2,153 Americas partners.

David Reilly also found that the US revenue was $6.9 billion and PwC reported total North Americas and Carribean revenues was $7.960billion. To arrive at US partners, we can further prorate on this revenue basis to come to 2,153 * $7,960/$6,900 to come to 1,866 US partners.

The bonus of US$1.0-$1.4 billion over 1,866 US partners comes to between US$535,000 and US$750,000 per partner with an average of US$643,000 per partner take-home pay.

In an earlier blog (Saturday, December 9th, 2006), we had estimated that the typical Big4 partner takes home about US $650,000, so it appears that the math does triangulate on a per-partner basis. Our financial analysis seems pretty good!

Check out our total Big4 analysis at

The total partner payout is also assumed to be similar to the net income of a typical public company. Let’s take the PwC average of $1.2 billion net income on $6.9 billion of sales, leads to a net income/sales ratio of 17.4%. Let’s compare this with Accenture, whose public reported last twelve month revenues were $17.8 billion and net income of $1.0 billion, giving it a net income to revenue ratio of 5.70%. So PwC is a good 10% higher in this ratio, not a bad showing in its performance.

And why is PwC so intent on revealing its inner core secrets? It is relief from contentious and potentially business life-threatening litigation that the Big Four firm wants to avoid. PwC even said that it would be open to publishing its results if it could get liability caps on audit litigation. According to Mr. Nally, “To me this gets back to the role we play in protecting the integrity of the capital markets and that type of transparency should be expected if you’re looking for some kind of relief.”

We like the idea of full disclosure, but our back of the envelope math came quite close to the revelation that PwC brought forth recently. Is this a fair tradeoff that Big 4 firms get liability caps in exchange for disclosure? Now let’s see if the other Big Four firms are forthcoming with their financials and what they want in exchange.

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