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Partner remuneration

Quality is at the center of EY’s business strategy and a key component of our performance management systems. Our partners and other professionals are evaluated and compensated based on criteria that include specific quality and risk management indicators, covering both actions and results. Our policy regarding appointment, evaluation and compensation of board members is disclosed in our financial statements.

Global performance management processes cover partners in EYG member firms around the world. They reinforce the global business agenda by linking performance to wider goals and values. These ongoing, cyclical processes include goal setting, personal development planning and performance review, and are tied to partners’ recognition and reward. It is the cornerstone of the evaluation process to document partners’ goals and performance. A partner’s goals are required to reflect various global priorities, one of which is quality.

EY prohibits evaluating and compensating lead audit engagement partners and other key audit partners on an engagement based on the sale of non-Assurance services to their audit clients. This reinforces to our partners their professional obligation to maintain our independence and objectivity.

Specific quality and risk performance measures have been developed to account for:
  • Technical excellence
  • Living the EY values as demonstrated by behaviors and attitude
  • Demonstrating knowledge of, and leadership in, quality and risk management
  • Compliance with policies and procedures
  • Compliance with laws, regulations and professional duties
  • Contributing to protecting and enhancing the EY brand
The EY partner compensation philosophy calls for meaningfully differentiated rewards based on a partner’s level of performance, as measured by the Global Partner Performance Management (GPPM) process, which is a globally consistent evaluation process for all partners in EYG member firms around the world. Partners are assessed annually on their performance in delivering quality, exceptional client service and people engagement alongside our financial and market metrics.

We operate under a system that requires quality to be a significant consideration in a partner’s overall year-end rating.

To recognize different market values for different skills and roles, and to attract and retain high-performing individuals, the following factors are also considered when calculating total reward:
  • Experience
  • Role and responsibility
  • Long-term potential
  • Mobility
Instances of noncompliance with quality standards result in remedial actions, which may include compensation adjustment, additional training, additional supervision or reassignment. A pattern of noncompliance or particularly serious noncompliance may result in actions that include separation from Ernst & Young Accountants LLP.

The overall rating scale runs from 1 (lowest) to 5 (highest). There is a cap on the overall rating if the assessment of either the quality and effective risk management or the people engagement and teaming metric is “did not meet expectations”.

This means that a partner cannot receive an overall rating higher than 3 if the quality assessment is “did not meet expectations” (and may be considered for a 2 rating depending on the circumstances that gave rise to the particular assessment).

Quality rating data is recorded in the EMEIA Quality Measurement Tool leading to a 3-point rating scale (“did not meet expectations”, “met expectations” and “exceeded expectations”).

The overall rating determines the partner reward. The partner reward includes a base reward and the possibility of a performance award. The system was changed the fiscal year. The total base reward increased to 98% or more of the distributable income, while the total performance award pool was reduced to 2% or less of the distributable income. Also, the number of partners eligible for a performance award was reduced to 10% or less of the partner population and the award itself cannot generally exceed 20% of the total reward of the partner concerned. To qualify for a performance award the quality rating should at least meet our quality standards.

During fiscal year 2015/2016 two partners were granted a performance award for their exceptional performance.

Quality ratings of external auditors
All professionals receive a quality rating annually and quality ratings impact promotions and other growth potential directly.

Regarding “external auditors” - partners and executive directors registered with the AFM - rating inputs result from our Audit Quality Reviews (AQRs) and assessments provided by the PPG, the CO, the Independence Desk and the General Counsel. Information on infringements and incidents is an important input as well. If and when files of the auditor are subject to an external inspection, the results of this inspection are taken into account, too.

The table below shows the outcome of the annual performance review process during fiscal year 2015/2016.

Quality rating external auditors (partners and executive directors) 2015/ 2016 % 2014/ 2015 %
Quality did not meet our expectations 19 13% 12 8%
Quality met our expectations 90 60% 105 69%
Quality exceeded our expectations 40 27% 35 23%
Totals 149 100% 153 100%

When establishing a quality rating, the following criteria are used:
  • Tone at the top;
  • Involvement in quality initiatives;
  • Participation in quality roles, such as PPG, Local Quality Partner, EQR, accounting reviewer;
  • Being a facilitator at our technical trainings;
  • Attitude towards and functioning in review of other persons’ work, including training on the job;
  • Permanent Education requirements;
  • Attendance at mandatory training events;
  • Timeliness and well prepared compliance with requirements relating to consultation, accounting review and EQR processes;
  • AQR ratings;
  • Involvement in, and responses to, the AQR process;
  • Results from regulatory inspections;
  • Archiving violations;
  • Brand & reputation risk;
  • Issues arising from client disputes, claims, ethics hotline and other sources;
  • Timely compliance with independence and other mandatory confirmations;
  • Quality of GTAC file submissions;
  • Actions taken to address quality issues identified, including timely reporting of progress;
  • Complexity of the client and engagement portfolio.
If in a certain year a partner or executive director receives an underperformance rating, improvement steps are agreed upon and monitored during the year. Reoccurrence of underperformance is not accepted and typically results in the executive director or partner leaving our firm or the Assurance Service Line.

When the quality of an auditor’s work is not up to standard, we take action. The following measures can be deployed after sub-standard work: a disciplinary discussion (normoverdragend gesprek); setting up a remedial action plan to prevent sub-standard work in the future; the request to present the quality shortcomings and the ‘lesson’s learned’ during learning meetings; a financial penalty; deregistration with the AFM, which implies that the partner can no longer sign audit opinions; and in very severe circumstances, separation from the firm.

In order to move quality forward and motivate our professionals, we consider it also very important to apply positive incentives, such as awards for excellent work. Provided they are communicated broadly, positive incentives often have a more direct beneficial impact on behavior towards good quality work than negative measures.

Dutch Code for Audit Firms & Public Interest
The main objective of the Dutch Code for Audit Firms (Code voor Accountantsorganisaties) is clear: safeguarding the public interest in audit firms. Society’s trust in the reliability of auditor’s reports is the foundation of our profession. Therefore, we subscribe to the principles and best practices of the Code. We pledged to implement the Code by signing a covenant with the NBA in June 2012. By doing so, we confirmed our commitment to put the public interest first. During fiscal year 2015/2016, our firm adhered to the Code.

The Stakeholder Dialogue
The Code stresses the importance of an audit firm’s dialogue with its stakeholders. At EY, we acknowledge the importance of open communication and transparency vis-à-vis our stakeholders. We practice this policy of transparency in the direct fulfilment of our professional duties, e.g. through meaningful audit reports and management letters and through an active role of our auditors at the shareholders’ meetings of our clients. In addition, beyond activities related to individual engagements, we regularly meet with external stakeholders such as shareholders, non-executives and executives of current or prospective clients, government, regulators and others.

We believe a constructive and regular dialogue with our main stakeholders about the role of the auditor and the content and relevance of our profession is a vital component of our purpose to build a better working world and to serve the public interest. After all, in a society that changes ever more rapidly, the needs, interests and demands of our stakeholders change, too. Therefore, defining the public interest is a continuous exercise which includes a dialogue with the stakeholders who make up the very ‘public’ we have a duty to serve.

For that reason, in fiscal year 2015/2016, we continued to organize many meetings with our external stakeholders. The Steering Committee continued with the central theme: “Working towards trust” (Werken aan vertrouwen). This theme is both closely connected to our global promise of “Building a better working world” and very topical in the Netherlands. As in other years, during fiscal year 2015/2016, we organized four Round Tables with non-executive directors of PIEs and other large Dutch companies and institutions, discussing “the internal audit function”, “executive pay” and “the role of supervisory directors in mergers and acquisitions”. Although the stakeholder dialogue is primarily an initiative of our Assurance Service Line, we are acutely aware of the importance of the public interest in other service lines and of the many links – including reputational – that bind the service lines together. Trust in our auditors also depends on the reputation of EY’s tax advisors in the Netherlands. Hence our interest in broadening the stakeholder dialogue to non-assurance issues, too.

As in prior years, in January 2016 we organized a round table with investors and analysts discussing a vision on reporting and auditing in 2025. Our clients’ business and their environments are changing rapidly, and this will also affect the accounting and audit profession in the future, from integrated reporting through to assurance on non-financial information.

Where appropriate, we introduced the “public interest” subject from our stakeholder dialogue in some of our other external events. In a number of internal and external publications, we reported on the stakeholder dialogue, made proposals and put forward our opinions on the way the auditor should put the public interest first. In our “A Vision on Supervision” (Zicht op Toezicht) we discussed cybersecurity and in “Inform” we discussed the theme of culture and behavior. This provided all participants with relevant information and sparked discussions about the auditors’ role from this perspective.

Notwithstanding the importance of these meetings and activities, our stakeholder dialogue is not limited to the members of the Steering Committee or the EY participants in these particular meetings. All our partners and executives must recognize the importance of this dialogue and actively engage in it wherever possible and suitable. It offers us invaluable new insights into how to foster the public interest and it enriches our professional work. We stress the importance of this participation to our partners and executives and prepare them for it through our internal media and training programs.

Compliance with the Code
We fully support the values and principles of the Code. Many of the best practices it establishes were already embedded in our processes and/or communications when we pledged to implement it. Since then and where necessary, we have adapted our processes and extended the information provided in this Transparency Report and on our website to ensure that we not only work within the spirit of the Code but are also in formal compliance with it.

A detailed overview of our compliance with the Code is disclosed on our website. This Transparency Report either provides information or refers to other disclosures of information (our website) with respect to the items mentioned in the Dutch Code for Audit Firms.