PwC China Partners Asked to Take 50% Pay Cuts Amid Regulatory Investigation
Two informed sources revealed to Reuters that PricewaterhouseCoopers (PwC) has requested its partners in China to take pay cuts of up to 50%. The reason behind this decision is that the company has been losing some corporate clients as a result of a regulatory investigation, forcing PwC to reduce costs and lay off employees.
The Chinese authorities have been investigating PwC’s role in auditing the troubled Evergrande Group. In March, the securities regulatory agency accused PwC of involvement in a $78 billion fraud scheme over a two-year period ending in 2020.
Following the launch of the regulatory investigation, an increasing number of clients have left PwC, leading to layoffs within the company.
Sources stated that in order to further cut costs, PwC has requested its highest-earning partners in China to cut their annual income (including base salary and bonuses) in half, while other partners’ compensation will be reduced by approximately 20% to 40%.
One source mentioned that PwC began issuing pay cut notices to its partners in China at the beginning of this month, with the pay cuts expected to take effect as soon as next month.
According to another source, senior partners at PwC China earn an annual income of 5 million yuan (approximately $688,914), while mid-level partners earn between 2 to 3 million yuan, and junior partners have an average starting salary of around 1.5 million yuan.
In recent months, as part of the government’s “common prosperity” campaign, including austerity measures, some Chinese financial institutions have been reducing the salaries of senior staff. However, such substantial salary cuts are not common among international companies operating in China.
As one of the four major international auditing firms, PwC’s business in China includes auditing, consulting, and tax services. According to its website, as of September last year, PwC had a total of 781 partners on the Chinese mainland.
Bloomberg reported on May 30th, citing insider information, that due to mistakes in auditing Evergrande, PwC could face a record fine of at least 1 billion yuan (approximately $138 million) from Chinese regulators, and some of its mainland Chinese offices may cease operations.
PwC had been auditors for Evergrande for nearly 14 years until early 2023. Evergrande was ordered to liquidate in January this year due to debt defaults.
According to calculations based on disclosure documents by Reuters, over the past few months, more than 30 Chinese listed companies have stopped hiring PwC for auditing, many of which are state-owned enterprises or financial institutions, including Bank of China and China Life Insurance.
The documents showed that Bank of China and China Life Insurance paid nearly 200 million yuan and 64.2 million yuan respectively in accounting fees last year.
On Tuesday, Reuters reported, citing sources, that PwC is considering laying off up to half of its financial service auditors in China, with cuts of around 20% for other audit teams and non-audit business lines.
Like many foreign companies dreaming of making it big in China over the past few decades, PwC has built a significant business presence there.
Official figures show that the main onshore business division of PwC Zhong Tian LLP had an income of 7.92 billion yuan (approximately $1.1 billion) in 2022, making it the highest-earning auditing institution in China that year.