Strong & steady

Despite all the red ink in the economy, the state of compensation in the profession has been generally positive over the past 18 months

By John Lorinc
Illustration: Michelle Thompson

For veteran Winnipeg CA Joel Lazer, it was a revelatory moment. A co-founder of Lazer Grant Chartered Accountants and Business Advisors, he had set up an innovative employee bonus pool system, which encourages everyone in the firm to take personal responsibility for its overall performance. Inspired by a US management consultant’s advice during a 2002 seminar, the so-called “Lazer Results” system augmented an older philosophy established by the original partners in 1982 that ensured the various practice groups would share profits among themselves to cushion the blow of a slow year. “We always share the good stuff,” Lazer says.

The 33-person practice founded in 1982 by six accountants offers a range of services, including consulting, attracting entrepreneurs as clients and dealing with small businesses with revenues in the $5-million to $100-million range. All employees and partners see the monthly numbers. “Everyone at Lazer Grant sees themselves as responsible for marketing the company,”

Lazer says. The strategy appears to have borne fruit. The firm has doubled in size since 2002; in 2009, it was on track to generate one of the largest bonus pools since Lazer established the system, despite a downturn that seems to have mostly steered clear of Manitoba. Lazer’s story reveals much about the state of compensation in the Canadian accounting industry in the past 12 to 18 months, a period that straddles one of the most daunting global downturns since the Great Depression. Despite the red ink and the relentless scaling back of growth forecasts, the Canadian accounting profession appears to be weathering the financial storm, as the generally positive results of the CICA’s 2009 CA profession compensation survey suggest.

“CAs are doing quite well and holding their own, given the economic times we’re in,” says CICA president Kevin Dancey. The survey, conducted last spring, asked members about 2008, the year that began with the resolution of the asset backed commercial paper crisis and closed with the domino-like collapse of some of the world’s leading financial institutions. Dancey points to the fact that of the 15,981 respondents (equivalent to a 29% response rate), 56% were optimistic about total compensation growth for 2009. “It’s an important point,” he says.

The survey results offer few surprises about the makeup of the Canadian accounting profession as it enters the 2010s. Having been a partner for 27 years, Lazer belongs to the fastest-growing segment of the owner portion of the profession. And those boomer-related numbers continue to edge up. Compared to 2005, there are now more CAs who have worked 20 years or more, and slightly fewer at the front end of the profession — a result that speaks to the broader demographic change in the workforce at large.

(The overall breakdown is likely even more pronounced. The 2009 results are skewed toward younger accountants because 61% of the respondents are under 45, whereas for the profession as a whole, the actual figure is 48%.)

Consistent with the pre-downturn strength of Western Canada’s commodity boom, the profession continued to shift toward British Columbia and Alberta since mid-decade, with those provinces seeing an increase in the overall number of respondents (BC 16.6%, Alberta 12.4%). Ontario and Quebec, by contrast, have seen declines of 6.3% and 12.2% respectively.

Ownership, on the other hand, seems to have declined: 83% are employees of a business or organization, up from 77% in 2005, whereas the profession in 2009 includes slightly fewer partner/owners and sole practitioners than it did four years before.

Over the same period, there has been a 6% increase in the number of CAs working in the three levels of government, as well as in public institutions such as hospitals and libraries (fewer, however, are working in universities and colleges).  The growth has been driven by tougher accountability rules for civil servants and public programs, notes Ian Cullwick, a partner with Deloitte Consulting in Ottawa. “The public sector is a good example of where demand outstrips the supply of individuals with public sector experience.”

When it comes to compensation, the survey offers a snapshot of a profession capably handling trying times.

Between 2007 and 2009, total average compensation across Canada was virtually unchanged ($186,544 versus $186,543, respectively), although the median rose to $126,857 from $123,000 (the 2005 median is $110,000). The national average for sole practitioners is $167,515; $306,603 for partners; and $442,206 for the owners of other businesses. Nonowners — representing almost 14,000 respondents — report average total compensation of $167,833.

The average pay for a new CA is a respectable $71,817, and those figures rise steadily in the first five years — evidence, Dancey says, that the profession continues to be attractive to young people. (Indeed, the CA profession is expecting an increase in the number of UFE writers this year.)

Paul Long, the CICA analyst who compiled the survey, points out that the median figures offer a crisper picture of compensation trends because the averages are pulled up by a relatively small number of very highly paid members. Indeed, in the first to 85th percentiles, total compensation grew between 2007 and 2009.

While the average increases have outpaced inflation in the past two years, salary growth is significantly lower than the 13.5% increase recorded in the 2004 to 2006 period, says Long.

Within the national data, there are clear regional variations. CAs from Atlantic Canada are still riding the wave of East Coast prosperity, with double-digit average compensation increases since 2007 in every province except Nova Scotia (which registered a more modest 5.2% increase). “Our region tends not to have the highs and lows of what happened in much of the rest of Canada,” says Michele Wood-Tweel, CEO of the Institute of Chartered Accountants of Nova Scotia and chair of the member relations task force that oversees the survey. “We have a more stable growth pattern; we’re in a more moderate band of change.”

“We don’t see any reduction in salary rates,” says Michael Casey, partner with Hemming Weir Casey Inc. in Halifax. “We’re paying people well and there’s still good demand for CAs in Halifax-Dartmouth.” Casey notes that the large practices have been hit by the fact that a lot of initial public offering work dried up. But for small and midsized practices, owner-operated business clients in Atlantic Canada are thriving. “Our firm is growing, our revenue is growing. Our problem is finding good people to do the work.”

In the Prairie provinces, there’s been slight growth (less than 1%, except Manitoba, which has 1.02%), but that’s a big drop from the boom-time numbers captured in the 2007 survey, which reflected the runup in oil and gas and potash prices.

Evidently, economic diversification has provided a counterbalance to the volatile resource sector. “Manitoba is doing quite well compared to other parts of the country,” says Gerald Peterson, a partner with PPW Chartered Accountants LLP in Winnipeg. He’s expecting to increase compensation in his firm by 5% to 10%, although there’s still a sense of caution among his colleagues and client organizations. “Everyone [in Manitoba] is looking at the future with some concern. But companies are being proactive. We’re not seeing a lot of red ink, just smaller profit margins.”

Alberta’s average compensation tally remained the highest in the country, at $213,850, up about 0.7% from 2007. Yet that pace of growth has slowed markedly, says Jane Halford, CEO of the Institute of Chartered Accountants of Alberta. “That’s truly reflective of the business here in Alberta,” she says. Despite the slump in the energy business due to the collapse of oil prices, Halford says the profession remains recession-proof. “Our experience anecdotally is that CAs who get laid off due to economic reasons are finding other positions fairly quickly.”

The story isn’t as upbeat in Canada’s three most populous and economically powerful provinces, as numbers dropped. Ontario, British Columbia and Quebec all experienced falling compensation averages, with Quebec dropping the furthest, for a 5.3%decline to $139,855.

London, Ont., sole practitioner Amy White has heard that there have been layoffs at some of the Big Four and midsized firms in southwestern Ontario. That hasn’t happened in eons, she says. (KPMG, Ernst & Young, PricewaterhouseCoopers and Grant Thornton declined to be interviewed for this feature.) But, White says, the dramatic manufacturing downturn hasn’t affected her practice. Since buying another practice in July 2008, White says she has been “crazy busy,” largely due to a stream of clients who are starting new businesses in fields such as web design and Internet commerce. In fact, White is in the process of hiring staff to cope with the additional volume.  

Outside traditional accounting work fields, CAs who command the highest salaries tend to work in insolvency, new business development and corporate financial advisory capacities, among other fields. Those with additional non-CA designations — chartered financial analyst, engineer, certified business valuator and MBA — tend to earn more. Likewise, the profession continues to attract entrepreneurs, with about one in eight CAs owning a nonaccounting business.

In terms of sector, public practice accountants have seen their average total compensation rise steadily from 2005 to 2009, as has been the case for CAs working in most areas of the public and education sectors.

But the impact of the credit crisis, as well as the period of economic uncertainty that pervaded much of 2008, can be seen in the data for several major industrial sectors. Compared with 2007, total compensation dropped in oil and gas, mining, real estate, retail/wholesale, transportation/distribution, telecommunications, arts/entertainment/leisure and agriculture. Earnings did rise in such fields as pharmaceuticals. But the overall change for industry was a slight drop, from $232,432 in 2007 to $229,544 in 2009.

The profession’s industry numbers generally mirror broader compensation trends in the private sector. In a new national survey of 500 large firms representing more than 870,000 employees, Mercer Consulting found that average salaries rose about 2% in 2009, with a 2.7% forecast for 2010. But those figures, says Montreal-based Mercer principal Marie-Christine Piron, exclude the 30% of respondent firms that simply froze salaries outright in 2009, and the 8% that plan to freeze salaries in 2010. In the financial/banking/investment sector, the averages have been slightly lower, at 2.5% for 2010. “They’re being very careful before announcing 2010 raises,” Piron says.

Not surprisingly, the 2009 survey reveals a reduction in total compensation for senior executives. President-CEO respondents reported a real decline of almost 5% since 2005, and CAs holding other top financial posts experienced a contraction since 2007.

Those changes reflect ongoing media coverage of executive pay, increasingly cautious compensation governance practises for top-level financial managers in large organizations, and the long-term move away from stock options and other incentive plans that stress short-term results rather than long-term growth.

Among top financial executives generally, Ian Mason, a principal at Hugessen Consulting in Toronto, has seen flat pay and scaled back bonuses in the past 12 to 18 months. Some firms have opted to change their profit-sharing plans by targeting most of the funds in the bonus pool to top performers, Mason says. “That person will get much more than others this year  but will get the same as typical increases for previous years.”

Indeed, while firms in economically stable regions such as Manitoba or Atlantic Canada have been able to maintain their profit-sharing plans, the survey shows a sharp 16.2% drop in nonbase compensation nationally, a clue that at the end of last fall’s market roller coaster, many firms retrenched in anticipation of a recession.

“A lower increase, say 2% or 3%, is not unusual,” says Susan Maynard, audit partner with Collins Barrow in Toronto. As Mason has seen among his compensation clients, Maynard says the only employees receiving bonuses these days are those who “far exceeded expectations. That could be a source of frustration for some people, and hopefully it won’t be long lived.”

The scaling back of bonuses is magnified by the fact that nonbase compensation jumped 34% between 2005 and 2007, so the total change from mid-decade is almost 50%. Long points out that nonbase compensation is more easily adjusted than salary packages.

What also seems to be taking place is a reconsideration of the nature of bonuses. For much of this decade, bonuses were broadly distributed, reflecting an organization’s growth. But Mason says some firms are moving to tie bonuses for financial executives to achieving compliance goals. Graham Dodd, senior manager for Deloitte Consulting’s human capital practice in Vancouver, says many companies are managing their bonus plans much more closely, with an eye to rewarding individual performance. “That means building a stronger understanding of what different levels of performance look like for various roles, in terms of output and behaviour with clients or colleagues,” he says.

As for benefits, the survey indicates that for both owners and non-owners there has been a slight decline in the proportion of respondents receiving virtually every category, including health, life insurance and pensions, as well as a range of perquisites such as out of country travel and parking. The trends reflect a general belt tightening in the face of a diminished economy, as well as the ongoing problems facing defined benefit plans in large companies.

As Cullwick points out, the plight of organization pension plans has led to some upward pressure on base salaries as firms look to front-load their compensation liabilities. “Cash is king.”

The apparent resilience of salaries in the accounting profession has prompted many in the industry to reflect on the state of the job market for CAs in the next few years. In the middle of the decade, big firms were engaged in the so-called “war for talent.” The shortage of highly qualified accountants, increased regulatory demands and the resource boom in Western Canada all contributed to an extremely tight hiring environment. Young accountants could write their own ticket and firms had to engage in bidding wars to land the recruits they needed.

These days, the market remains steady and certainly is less cutthroat than it was circa 2007 — a welcome change for many firms. “Despite the economy, it’s a fairly strong and healthy career market for CAs,” says Cullwick. “Firms have been fully deployed and there’s an insatiable thirst for CAs in industry. [Demand] has been strong in Atlantic Canada,” says Wood-Tweel.

In the past year or so, small and midsized practices with steady books of business have been able to recruit more effectively. “There’s a lot more good candidates becoming available,” says Maynard. When a firm puts out a salary offer these days, she says, there isn’t much push back by applicants, in terms of perks, bonuses or higher pay packets. But, Maynard says, “you’re still paying well for the strong performers.”

In some parts of the country, such as Alberta, education officials have added university spaces to generate a larger flow of accounting graduates as a means of ameliorating labour shortages. Ontario, likewise, has seen record numbers of new accountants joining the profession.  

Elsewhere, the ebb and flow of Canada’s regionalized economy has brought new recruiting advantages. Casey says his firm has been able to attract Maritimers who went west to take advantage of the prosperity from the oil/gas sector but have been coming back to Atlantic Canada.

But the sense of recruitment equilibrium may not be long-lived. “As we start to emerge from the recession, it’s really a time for organizations to pay attention to keeping talent,” says Dodd. “There’s a historical pattern that retention risk is greater in the aftermath of a downturn.”

Back in Winnipeg, Lazer has seen his steadily growing firm come through a period of uncertainty with a poise that underscores the accounting profession’s claim to be recession-proof. And a generous helping of managerial smarts, in the form of a well-executed incentive system, certainly hasn’t hurt either. “It’s why we have everyone so energized around here. Everyone feels ownership of the company.”

John Lorinc is a freelance writer based in Toronto