Human Resource Management in the Big Four. Turnover in the Consulting Industry

The Twofold Problem

Employees are a company's greatest asset and competitive advantage (Derivan, 2016). However, the consulting industry, represented by its flagship companies PWC, EY, KPMG and Deloitte, is facing a major turnover problem during recent years with annual rates between 15 and 20 per cent (Batchelor, 2011; Topconsultant.com, 2005). This paper investigates two of the major causes for this development; the ‘Meatgrinder Problem' and the ‘Kickstart Problem', which form a vicious cycle. Therefore, it is necessary to evaluate whether the industries' current employee retention mechanisms are sufficient to break the cycle of the two interacting causes for turnover.

Summing up the main components associated with the cost of turnover, the Saratoga Institute estimates the average cost of turnover to one time the annual salary of a worker (O'Connell & Kung, 2007). However, not all kinds of turnover are necessarily detrimental. According to Abelson & Baysinger (1984), some degree of turnover can have positive consequences for organizations like better person-job matches and staffing flexibility. On the other hand, dysfunctional turnover is the voluntary separation of employees whom the organization prefers to retain since these employees have made positive contributions to the organization and, by leaving, detract from overall effectiveness (Abelson & Baysinger, 1984). Where does the Turnover come from?

The meatgrinder problem.

This problem originated in the notion of companies to impose high physical and mental demands on employees up to the point of burn out. The underlying assumption is the industries intend to exploit the ingenuity and engagement of young talents by posing unsustainable demands. Between this reputation and the high turnover exists a spurious relationship, meaning that they share a common cause - the high job demands.

According to the Job Demands-Resources Model, job demands are physical, psychological, social or organizational aspects of a job that are associated with physiological or psychological costs (Bakker & Demerouti, 2014).

In order to understand the main sources of strain, they will get described by differentiating between factors contributing to either organic or structured churn, which describe the overall turnover in an organization and provide a method for analyzing the company's hiring and retention patterns (Rouse, n.d.; Green, 2019). Job demands leading to organic churn, which is the voluntary turnover, are the long works hours and the demanding environment leading to an insufficient work-life balance (Rouse, n.d.).

According to a former employee of the Boston Consulting Group, it is common to work 60-hour weeks that “can easily spike to 70, 80, 90” (Kivestu, 2017). Long working hours have strain-based effects on individuals' mental and physical fatigue levels as well as time-based effects negatively impacting the employees' work-life balance (Rowlinson, 2009). According to a former employee of Deloitte, the work-life-balance is especially bad in the busy seasons, where overtime could not get reduced (Glassdoor.com, 2019). An employee of Accenture described the business as a “meat-grinder, plain & simple”, where consultants work long hours in order to beat its competition (Glassdoor.com, n.d.).

The only measure to compensate for those demands is the creation of job resources which refer to physical, psychological, social or organizational aspects of the job that are functional in achieving work goals, reduce job demands and the associated costs and stimulate personal growth, learning and development (Bakker& Demerouti, 2014). If those job resources are insufficient, the high job demands lead to the industry's current turnover situation which a former Deloitte employee described as “mass fluctuation” (Glassdoor.com, 2019).

In addition to organic churn, structured and, therefore, involuntary churn occurs due to the organizational structure and corporate culture (Kivestu, 2017). First of all, most consultancies are structured as pyramids with relatively few partners (Kivestu, 2017). Thus, firms manage it with an ‘up or out' policy which keeps the pyramid intact. This policy of requiring employees to race up the promotion ladder or face being eased out is commonly regarded as a sign of the consulting industry's hard-nosed approach to doing business (Batchelor, 2011). The consultancies introduce new employees to the prospects of being a partner as well as building general management skills. However, not everyone can make it to the top (Batchelor, 2011). Since job insecurity is widely recognized as a contributor to emotional exhaustion, the ‘up or out' policy contributes to organic and structured churn as well as to the second problematic trend within the consultant industry - its ‘Kickstart Problem' (Rowlinson, 2009).

The kickstart problem.

The ‘Kickstart Problem' is based on the reputation that young consultants enter the workforce with the intention to exploit the firms' resources before leaving the company for attractive exit opportunities or specialization (Batchelor, 2011). According to Kivestu (2017), after 2-3 years of consulting experience, especially at a top firm, the LinkedIn inbox of a young consultants “starts filling up” since a lot of operating companies highly value the consulting skill set. In addition to this, consultancies face the challenge of constructing careers for people who want to apply their skills to running a business of their own (Batchelor, 2011). Most of the consultants start shortly after graduation, which means they're early in their career and still undecided about what they want to do (Kivestu, 2017). Therefore, many use the time at consultancies to seek out jobs that allow them to specialize in industries they are interested in (Kivestu, 2017). An employee of Deloitte described its workplace as a “good employer for the start of the career" (Glassdoor.com, 2019). Using the firms' networks, training and promotions, young consultants gain experience and expertise for future employment. The resulting voluntary turnover leads to a constant leakage of their best people into senior jobs in the corporate sector (Batchelor, 2011).

In order to find a solution to the industry's turnover problem, the ‘Meatgrinder Problem' and the ‘Kickstart Problem' need to get examined as a twofold problem, where the two trends negatively reinforce each other (See Appendix A).

Current Retention strategies

The main pillars of the industry's retention systems are promotions, training and monetary rewards. In line with the ‘up or out' policy, the employee cannot stay on one level for a long period instead, they are advancing upwards in the organization in accordance to their performances (Sandberg & Strangberg, 2008). Since not everyone can get promoted, it is not only the main form of motivation and retention strategy to acknowledge employees' achievements but also the only way for the consultants to keep their job (Sandberg & Strangberg, 2008). In a semi-structured interview with a senior auditor with EY (see ‘Finding People'), it was pointed out that the promotion models of the big consultancies are all the same: “Two, three years you are assistant, afterwards you will be senior audit manager and so on” (See Appendix B).

Closely related to career advancements is the desire for leadership training. The ‘Big Four' realized the value of early leadership training when looking for ways to reduce its high junior attrition rate and started regular workshops, giving juniors the time to work on their career plans, as well as providing coaching or mentoring programs (Consultancy.uk, 2018). PwC, for example, launched its ‘Discover' program, a leadership retreat aimed at juniors who had just been promoted to their first manager role, where juniors learned about key leadership skills as well as reflected on their career goals, strengths and further opportunities for growth (Consultancy.uk, 2018).

Regarding monetary incentives, most consultancies provide different entry-level pay for each stage of the promotion model (Sandberg & Strangberg, 2008). Above the base pay is a performance-based pay dependent on the performance level which is decided by the rating each employee receives after the promotion procedure (Sandberg & Strangberg, 2008). Therefore, high performers get rewarded with higher paychecks in order to keep and encourage the employees that perform well (Sandberg & Strangberg, 2008). In addition to this, some implemented additional reward schemes for "at risk" parts of the workforce or offer other monetary incentives. EY and Deloitte offer a discount system for products and services associated with daily needs and KPMG provides a similar program called ‘Perks at Work' (MacLean, 2013; Topconsultant.com, 2005).

In addition to traditional retention strategies, some consultancies started to develop more progressive approaches to retain employees with a better work-life balance as well as retraining. For example, in order to increase flexibility and the work-life balance, PwC developed a flexible work program that allows all employees the ability to fit work into other commitments like the ability to travel or do further study (Consultancy.uk, 2018). A similar approach was taken by Deloitte which offers a similar scheme tailored to juniors, called the ‘WorkAgility Programme', where employees can elect for extended time off to travel (Consultancy.uk, 2018).

Since about 21% of the employees have clear aspirations for partnership, most consultancies have established partner and Alumni programs in order to maintain relationships and leverage the networks of former employees who did not get promoted (Chun Wee & Turner, 2012). According to EY (n.d.), “it's a mutually beneficial relationship, allowing alumni to continue to build on the legacy they created at EY

Finally, in order to retain dissatisfied staff, Deloitte launched its ‘DCC initiative' to help employees figure out interests and skills that might be a better fit somewhere else in the organization (How Coaching Helps a ‘Big Four' Accounting Firm Retain Staff, 2006). The program features a Web site with self-assessment tools combined with one-on-one coaching

[...]