EY has appointed 1,033 new partners, but the latest class will not enjoy the traditional share of equity that comes with the promotion prompting questions of whether the title still holds relevance or now means something else entirely.

As it wrestles with a ground-breaking split of its business that involves the sale of its consulting arm, the Big Four firm has made up the largest ever cohort of partners in its history. Women and the assurance service line represented 32% and 33% of the promoted, while emerging markets also made up nearly a third of new partners.

It has since emerged that the group are not equity partners, as internal wrangling over who gets most of the profits from the sale of EY’s consultancy arm continues to generate friction within the firm. Senior partners could make multiple millions from the split, while their juniors – and some more recently promoted employees – will get token sums.

Some believe they were awarded the promotion to warn off rival firms from poaching at a time of deep uncertainty inside EY. There is a sense becoming partner is less about joining an exclusive club at the top of the profession and the perks that come with it, and more of a badge of honour that can be used for leverage.

To that end, the move may be part of a wider trend across large professional service firms, rather than simply an EY decision.

“It’s difficult to stop title inflation as [it is] quite a powerful recruitment tool and cheaper than paying properly,” a salaried partner whose job title was upgraded at EY told the Financial Times.

“Using the partner title raises the importance of the existing associate partner role, recognising their expertise, client delivery and leadership,” EY said. “It will create career opportunities for EY’s people and attract talent with the skills needed to win in an evolving market – particularly in fast-growing areas such as sustainability and technology.”

But it will not involve equity, which was the traditional prize for making it to the top.

Partnerships are unusual outside of professional services, and there are multiple reasons why it became the preferred structure, said Heather Townsend, co-author of How To Make Partner And Still Have A Life. Most related to economies of scale and being able to sell more to clients by virtue of housing more expertise under one roof.

“People in professional services sell time and expertise,” Townsend told AccountingWEB.  “Despite the rise of asset-based consulting, fixed fees and valued pricing, the professions are still capped in what revenue they can bill by time. Even if you have lower-skilled people doing the client work there is a finite number of clients you can maintain a relationship with.”

Partners are therefore charged to grow and then maintain “a profitable and sustainable business within a business”, Townsend said. “That business is only viable if clients want to buy the services the partner’s business is offering. Before the client will buy, there needs to be a significant amount of trust.”

“When I first trained and qualified as a chartered accountant a popular ambition was to become a partner and ‘get your name on the firm’s letterhead’,” said bookkeeping expert and chairman of the Tax Advice Network, Mark Lee FCA. “Some firms required new partners to buy their way in, as this would provide funds to pay off retiring partners who wanted their capital back.”

The idea of a PINO (partner in name only) dates back decades, Lee said, as internally salaried partners were distinct from equity partners.

“Only the latter were involved in key decisions, such as who else could be admitted to partnership. But all partners were taxed on a self-employed basis – as distinct from senior employees,” Lee said. 

Things began to change in the early 2000s with the introduction of limited liability partnerships (LLPs), Lee and Townsend said, as a renewed focus was put on salaried partners. 

“Some may have been called associate partners,” said Lee. “Other large firms have long called senior employees who don’t tick enough boxes to be made partner, or who do not want to take on the obligations of being a partner, directors – to show that they are more senior and highly regarded than senior managers.”

“This is why BDO in the 2000s introduced the principal role,” added Townsend. “It was to provide a career path for their very talented fee earners – often in tax – who were great but didn’t want to be a partner in the firm. With this salaried partner role in EY I suspect there are similar motivations going on.”

The key point is the cheaper cost to have self-employed partners rather than salaried partners or staff, who are taxed under PAYE as their salaries attract employers' national insurance contributions, Lee said. “Also, the firm’s obligations to self-employed partners is dependent on the partnership agreement rather than employment legislation,” he added.

One of the trickiest issues LLPs face is a decision to compel one of its members to leave the business when they hit a certain age, when they have done nothing wrong, and most have informal mandatory retirement age bands.

But the current battle for talent playing out in the sector is also having an impact on career development paths, experts said, as the Big Four can’t afford to write off staff between 45 and 55 like they once may have done.

“This salaried partner role gives the individual the status in the marketplace of being a partner without needing to bring them into the ranks of equity partner,” said Townsend. “So it helps the individual win work but also gives them a step up for their career path. This mandatory age requirement for partners often indirectly discriminates against females who have put their career on pause for a decade while they take on the role of caregiver to their family.”

And then there are changing workforce desires of the coming generation of accountants, who Lee and Townsend said are often unfairly stigmatised as workshy but are actually less enamoured with sacrificing their lives for decades in order to make partner.

“Many of the younger generation are not prepared for this ‘delayed gratification’ that the traditional partnership model was all about,” said Townsend. “By introducing a salaried partner role, it means there is still a career path to partnership but without all the trappings that potentially are putting people off wanting to be a partner in EY.”

Not everyone wants the stress and financial commitment of being a partner, experts said, and particularly in troubling times the protection of employment legislation provides a safety net against the pressure and risks of becoming an equity partner in a large firm. 

“I look back and realise I was one of the lucky few who remained married to my wife,” said Lee. “A majority of my fellow partners were divorced and some are in their third marriages. It almost felt like divorce was one of the prices to be paid for being a long-term partner in a large firm. No wonder so many younger people have stopped clamouring to become equity partners and are happy to settle for being PINOs.”