A PwC spokeswoman told AFR Weekend the firm was working to alleviate any concerns about conflict over the payments but did not provide details.
“We will continue to work with our stakeholders and clients to ensure any perceptions of conflict created by the retirement plan are removed or safeguarded appropriately. No changes to our retirement plan are underway,” she said.
The existence of the payments was revealed in late February to the The Australian Financial Review by former senior PwC partner Bill Edge, the head of the government’s audit quality and financial reporting advisory body, the Financial Reporting Council. Mr Edge, who earns about $100,000 a year as FRC chairman, has denied there was a conflict between his FRC role and the PwC payments.
AFR Weekend has also reported that former senior PwC partner David Wiadrowski, also receives the firm’s retirement payments while he is head of the audit committee of listed telco Vocus, a company audited by PwC. A Vocus spokesman has denied there is any conflict between Mr Wiadrowski’s role, for which he receives about $175,000 a year, and the PwC retirement payments.
‘Disclose, avoid dealing with PwC’
Governance groups and experts have split on whether the retirement payments should be disclosed but most erred on the side of more, not less, disclosure, especially in the wake of the banking royal commission where conflicted remuneration was identified as a major issue.
Simon Longstaff, the CEO of The Ethics Centre, said the retirement payments meant the former partners have a “continuing, pecuniary interest in the financial performance of the firm” which should be declared to any board they serve on.
“From what I understand of PWC’s arrangements, former partners receive a continuing payments from the firm funded out of recurrent income,” he said.
“If this is so, then PWC’s former partners have a continuing, pecuniary interest in the financial performance of the firm – on which they depend for their post-retirement income.
“In such circumstances, a former partner of PWC – who receives an ongoing payment from the firm – will have a potential conflict of interest if they are also a director of a company that has – or is considering having – commercial dealings with PWC.”
Dr Longstaff said it would be “inadvisable” for any former PwC partners receiving the payment to have “continuing involvement in matters relating to PWC” while in their new roles.
He added that if the company of the ex-PwC partner entered into a “commercial arrangement with PWC, then it would be prudent to declare any such arrangement as a “related party” transaction – even if there is some doubt about the strict necessity of doing so under the relevant provisions of the law.”
“I think that these considerations are especially pertinent in circumstances involving a company’s auditor – where a presumption in favour of independence is of critical importance.”
15pc cap on payments
The theory behind the scheme is that is it a reward to outgoing partners for building up the firm but its cost to current partner earnings, and the growing size of the payments, has meant successive CEOs have battled to rein in the scheme.
While the Financial Review was earlier told by multiple sources that the retirement payments were worth about 20 per cent of net profits, other sources have since said there is a 15 per cent cap on the value of the retirement payments. The understanding is partner payments will be cut if this cap is breached.
The PwC spokeswoman said: “The amount retired partners receive is subject to a cap but this cap has never been breached.”