As autumn arrives, the major accounting firms are unveiling their annual financial reports, revealing impressive earnings for their equity partners once again.

Deloitte recently disclosed that its average annual compensation for UK partners stands at £1.01 million. PwC reported average partner earnings of £862,000, while EY indicated that its UK partners received about £761,000.

It’s important to note that these figures reflect the average income among thousands of skilled yet unexceptional accountants, rather than a select few high-profile tax advisors or dealmakers. Deloitte boasts 749 equity partners in the UK, while PwC has 1,057. Unlike entrepreneurs, celebrities, or top athletes with unique talents, most accountants may not be recognized for their creativity, innovation, or leadership—qualities often rewarded in the business world.

The reported averages can be skewed by extraordinary cases. For instance, Hywel Ball, who recently stepped down as UK chairman of EY, earned £3.6 million last year, indicating that some partners earn significantly less, with many possibly making under half a million. Nevertheless, these figures are still striking, especially given that some may not be exceptional performers.

Moreover, unlike bonuses often seen in corporate and investment banking, the partners generally enjoy stable reward structures. Although they may need to reinvest a portion of their earnings back into their firms, the majority is distributed as cash, without the complexities of restricted shares or clawback provisions.

Furthermore, the lucrative nature of these partnerships can extend over many years. An accountant who becomes a partner at age 35 may expect to remain in that capacity for 15-25 years, a stark contrast to the typical five-year tenure of a FTSE 100 CEO or the ten years for a professional athlete.

For ambitious graduates who possess analytical skills but lack distinctive talents, a career in accounting presents a promising opportunity for financial rewards as they progress into middle age. According to the Office for National Statistics, average earnings for those in their 50s range from £38,000 to £45,000. Even with an additional £10,000 to £15,000 boost from having a degree, total earnings barely reach £48,000 to £60,000. For context, the Prime Minister’s salary is pegged at £172,000.

The rationale behind these substantial partner compensations is straightforward: the profitability of their firms. Deloitte UK’s profits were reported at £756 million last year, reflecting a 2.4% increase in revenue to £5.7 billion.

Interestingly, the financial challenges that affect their clients rarely impact the profitability of these large firms. Even during significant downturns, such as the global financial crisis, their income streams remained robust. For instance, post the crises involving major banks, PwC’s partner compensation only dropped slightly from £797,000 in 2008 to £777,000 in 2009.

The last serious financial upheaval for senior accountants was in 2002, with the collapse of Arthur Andersen following the Enron scandal, which reduced the big five accounting firms to the big four. However, even then, many Andersen partners found refuge in other firms.

This stability in earnings has been supported by trends such as increasing tax law complexity, rising compliance demands across industries, and the ongoing need for IT consulting—a domain that has flourished within the accounting profession, which increasingly refers to itself as a professional services sector.

So why haven’t competition and market forces attracted more new players to this lucrative industry?

Firstly, there’s a degree of self-perpetuation at play. Only the major four firms possess the scale and expertise necessary to cater to the largest clients, and many organizations prefer the reputation of established names for their bookkeeping. Audit appointments tend to be reassigned among these firms. Additionally, regulatory bodies, like the Financial Reporting Council, may have too cozy a relationship with the profession, where the penalties for audit failures remain insufficient to deter misconduct.

Secondly, these firms often help dictate the standards that make their services indispensable. By advising on new audit and accounting regulations, as well as tax policies, they contribute to an increasingly complex system that drives up the demand for their services—and billable hours.

Finally, some skeptics argue that clients are less likely to negotiate accounting and consultancy fees as rigorously as they would with other service providers, seeing these accountants as allies in their business dealings.

This year saw some fluctuations in partner profits, with PwC reporting a 5% drop. Conversely, other firms like RSM UK reported a 7% increase in profit per partner, reaching £708,000, as mentioned today.

What is the forecast for partner profits in the future? Likely upward. While enthusiasm for artificial intelligence may be overstated, the potential for AI to transform the professional services sector, particularly accounting, is significant, as stated in a recent report from the recruitment agency Indeed.

Many accounting tasks—such as bookkeeping, data management, financial reporting, compliance checks, and fraud detection—are increasingly suited for AI capabilities, suggesting a shift in employee roles within the industry. Whether this will lead to reduced costs for clients or simply increased earnings for top partners remains to be seen.