Compensation: solving the cost-talent puzzle

An overwhelming majority (84%) of U.S. and U.K. CFOs are facing a significant talent shortage within their departments due to factors such as high turnover rates and fewer people entering the finance profession, according to tax automation software company Avalara.

Of the different finance functions where CFOs are seeing a talent crunch, accounting ranked at the top of the list, with 81% of respondents reporting a shortage in that area. The list also includes financial planning and analysis (49%), accounts receivable (42%), and accounts payable (39%).

“Finance leaders must balance their company’s business dynamics while navigating unpredictable waters, given the pressures of high inflation, growing talent gaps, and concerns over an impending recession,” Ross Tennenbaum, CFO of Seattle, Washington-based Avalara, said in a Wednesday press release.

The accounting profession has been hit by a perfect storm of retirements, employee retention challenges, and dwindling numbers of graduates who specialize in the field, according to a blog post summarizing the survey findings.

Nearly three quarters of the Certified Public Accountant workforce reached the retirement age in 2020, the post noted. Meanwhile, the industry is struggling to retain younger people, who are leaving “in droves,” it said.

More than 300,000 U.S. accountants and auditors  have left their jobs in recent years amid sluggish salaries and tough certification requirements, according to the Wall Street Journal.

While there’s a need for a new influx of talent, the number of people taking CPA exams in 2022 was just over 67,000, down from 72,000 in 2021 — the lowest level on record, the Financial Times has reported.

Of those polled by Avalara, 54% said the decline in accounting graduates is driving a talent shortage. Forty-seven percent said the problem can be attributed to talented people changing careers, and another 47% cited burnout around hours and menial tasks.

The accounting talent shortage has begun showing up in financial statements by companies like Advance Auto Parts, the Wall Street Journal reported in July.

The last few years have been a particularly volatile period for accounting and other professions due to the COVID-19 pandemic, which has triggered a “Great Recalibration” among employees, according to observers.

“With COVID, people are starting to rethink what they want to do with their life and where they are going,” Mike Whitmire, CEO of FloQast, a Los Angeles-based accounting software vendor, previously told CFO Dive.

For CFOs struggling to find the right talent, automation might serve as one way to relieve some of the pain, according to Tennenbaum.

“The rise of artificial intelligence will help finance leaders around the world find new ways to drive savings and help make their current teams more energized by streamlining and automating repetitive accounting and financial tasks to help manage the accountant talent shortage gap that the majority of CFOs are facing,” he said in the Wednesday release.

Avalara’s research was based on a poll of 307 full-time CFOs in the U.S. and U.K. between Aug. 25 and Aug. 31.

That the accounting profession is going through a crisis of available talent is not news, but the role of accountants inside and out of organizations is something that’s changing.

Leaders such as the CFO are stepping into the spotlight more and more frequently, changing the finance department’s methods and focus — and “when you think about the classic jokes, or personas of accountants, they don't really hold true anymore,” said Ben Richmond, U.S. country manager at global small business platform Xero.

“I think now the power of a CFO or the power of internal finance roles are greater than ever,” Richmond said. “They're not just stuck in the backroom crunching data, they're way more out in front.”

For finance leaders seeking to woo new accountants, therefore, the very first thing the profession needs to do is rebrand, he said, recontextualizing the field as an engaging space that reflects this new dynamic.

Getting a technology refresh  

A 10-year veteran of the New Zealand-based company, Richmond has served as Xero’s country manager in the U.S. for four years. He previously served as VP, business growth Americas for Xero, among other roles, according to his LinkedIn profile.

Richmond, who worked in public practice accounting as well as commercial accounting before joining Xero, sees the modernization of the accounting field as a crucial topic that finance teams must address.

The number of U.S. accountants has decreased by 17% over the past two years with 300,000 such employees leaving their jobs during that time, according to a December 2022 report by The Wall Street Journal. The gaps left by those departing employees cannot be filled by the current number of college graduates with appropriate degrees in the field, with 84% of CFOs in the U.S. and the United Kingdom noting they had significant talent shortages within both their finance and accounting teams, according to recent research by tax automation company Avalara.

When it comes to closing that gap, providing the fresh, innovative tools and processes that newer, tech-savvy graduates expect can aid companies looking to lure in accounting candidates from a narrow talent pool. Relying on paper-heavy, historic processes essentially restricts a company’s available talent pool to those candidates who are willing to make the journey to the physical office, Richmond said, at a time when technology means there’s “no reason why we can't have remote teams,” he said.

Adding innovative technology not only helps offer candidates more flexibility, but it also can provide an essential look at the company’s thinking style, Richmond said.

“If I see an accounting firm that has a very clean office, that looks more paperless, that has a lot more modern technology, that as a client is who I want to go with because they look more forward thinking,” he said. “Talent is going to probably be assessing you in the same way.”

 Firms today are taking steps to bring newer technologies like artificial intelligence into the profession and tools like the cloud have aided the field enormously. But it’s also important for firms to be genuine with their candidates about what their day-to-day work will really look like: the reality is that a lot of the firms that are looking for talent “will put their people behind a desk, looking at a spreadsheet,” Richmond said.

Offering a work-life balance   

Though technology is a critical piece of the way the accounting profession can rebrand, it’s also important for companies to look at their own internal processes and culture before tweaking their external brand perception among candidates.

Before coming out with a shiny new external brand, companies need to consider if they’re operating like a firm that would be attractive to candidates, he said. 

Offering future accountants the option to work from home or benefits such as family leave, for example, can be key to nabbing candidates who are expecting that kind of flexibility and work-life balance, Richmond said.

Talking to one’s younger staff is essential to making those key shifts for businesses — this new generation of upcoming employees is “wired differently” when it comes to what they want and expect out of their workplace.

“It’s important for them [that] they understand how their work actually connects into the bigger purpose,” Richmond said of younger generations’ approach to work. “And they want to balance that with not missing time [with] family or having to sacrifice life to do that. That’s not something we should get grumpy about, that’s something we should embrace.”

Meeting this new generation of employees where they are is why smaller and mid-sized firms could have a greater opportunity than before to snap up talent; younger workers are less excited by the name on the company door than they are by the chance to do meaningful and engaging work. That makes it critical for CFOs who are seeking out accounting talent to “lead culture from the front,” Richmond said.

“If you're locked in your office, on the top floor, not accessible, then that's going to show through pretty obviously,” Richmond said. 

Companies today are looking to ford a delicate course between innovation and stability in the face of persistent economic headwinds.

For CFOs, that means embracing the way that the role has begun to shift: finance chiefs are no longer “bean counters and the numbers only people looking backwards,” said Gina Mastantuono, CFO of software-as-a-service company ServiceNow. “More and more often, we are absolutely tapped to take on more responsibility.”

Moving beyond the numbers

CFOs have a unique, enterprise-wise vantage point into their organizations that very few members of the executive team share, which “gives us a unique ability to be strategists and not just numbers specialists,” Mastantuono said in an interview.

Taking advantage of that viewpoint as a CFO played a key role in ensuring the Santa Clara, California-based SaaS company “didn’t get out in front of our skis too fast” in the face of recent economic turmoil, she said. Being able to “quickly read the tea leaves” helped the finance chief to slow down hiring while avoiding the layoffs that many other large-scale technology companies conducted. 

“We didn't lay off and we didn't shut down hiring, we're still hiring,” she said. “We're just being really focused, really smart and really mindful and thoughtful about the roles.”

However, doing so required poking her head into areas that some may consider outside of the traditional CFO’s purview.  

“I was never that CFO that was only about numbers,” Mastantuono said. “I was always that CFO that sometimes got her hand slapped, because she was butting into other areas because I feel so passionate that those [are] areas I need to be involved in when you're thinking about the long-term trends of the business.”

What that means for areas like human resources or hiring is that Mastantuono spends at least as much time talking to ServiceNow’s chief people officer as she does its chief revenue officer because “talent strategy is part and parcel for the overall strategy” of the business, she said.

“If I'm not understanding, if I'm not helping to articulate what the growth levers of the future are going to be, how is she going to be able to hire the right people and hire the right skills?” she said of her relationship with the CPO.

Getting ahead of the innovation curve

Mastantuono credits the innate curiosity she’s always had as a key factor in her ability to fulfill the CFO’s changing role as a strategic partner, which has been a hallmark of her career.

Mastantuono has talked frequently about the learning opportunities her unconventional career path has provided her — following a six-year stint at EY, she hopped to a director of accounting role at Triarc Companies, then took assistant controller roles at InterActive Corp and Revlon, looking to try something different , she said in a February webinar.

“Each kind of big job that I left, I usually went into a different industry, because finance skills are so transferable for the most part,” she said. “But the ability to continue to learn by switching industries was super fascinating to me.”

That fascination eventually led her to ServiceNow, where “being a female CFO in a big cap tech company, it was too big of an opportunity,” she said.

Taking on more strategic responsibility outside of the CFO’s traditional remit is especially critical in today’s post-COVID-19 environment, when finance leaders are being tapped as key players in the digital transformation initiatives at their organizations.

As ServiceNow’s finance leader, Mastantuono is honing in on driving new innovations as the company looks to build on promising financial results. For its most recent quarter, ServiceNow reported $2.075 billion in Q2 2023 subscription revenue, a 25% jump year-over-year, and a 23% boost to total revenue of $2.15 billion.

It’s important for CFOs to “take advantage of the rapid disruption that’s taking place,” she said. “And if we don't take smart risks that drive net new innovation, we risk being left behind.”

The company is one among several that has taken steps to bring emerging technologies into its software. It has integrated generative artificial intelligence technology into several offerings on its Now platform, partnered with fellow software firm Cognizant and expanded its partnership with KPMG to accelerate AI automation in its products.

“I think CFOs have got to get more comfortable investing ahead of the curve,” Mastantuono said. “And possibly sometimes ahead of demand … and that's not always an easy conversation to have. But I think it's really important.”

Tech giant Meta Platforms plans to ramp up hiring to support “priority areas” such as artificial intelligence following massive layoffs that are still underway, the company’s CFO said.

AI was a dominant theme of the Facebook and Instagram owner’s quarterly earnings call on Wednesday, in which the company reported its first sales increase in nearly a year.

“We've just really been investing in using AI for a long time to improve our ad systems,” Meta CFO Susan Li said during the call. The company is now seeing that work pay off in conjunction with stabilization in the macroeconomic environment, she added.

Meta reported $28.6 billion in total revenues for the first quarter, an increase of 3% year-over-year. The revenue bump follows three consecutive quarters of declines and beat analyst expectations. 

CEO Mark Zuckerberg largely attributed the turn around to AI investments that have enhanced services such as its TikTok lookalike, Reels, resulting in increased advertising revenue. The news also follows the company’s recent focus on organizational “efficiency,” which has included workforce reductions.

Meta has announced a series of layoffs in recent months impacting more than 20,000 workers and is also in the midst of a hiring freeze.

“The goals of our efficiency work are to make us a stronger technology company that builds better products faster, and to improve our financial performance to give us the space in a difficult environment to execute our ambitious long term vision,” Zuckerberg said during the call.

The company plans to resume hiring after completing layoffs in April and May and expects employee headcount growth in excess of 1% to 2% in 2024, according to Li. 

The crunch for talent within the accounting profession remains one of the biggest obstacles for accounting firms today. 

The number of U.S. students completing a Bachelor’s degree in accounting fell about 8% in the 2019-2020 school year compared with the 2011-2012 period, shrinking to 52,481 graduates from 57,482, according to a 2021 report from the American Institute of Certified Public Accountants.

The reality is, these days fewer people in the United States want to be accountants. 

International talent

There are very strong candidates in other parts of the world that can fill that labor demand-talent gap, according to Jim Brady, vice chairman of advisory services at alliantgroup, an international tax services provider.

“You just have to tap into talent, wherever you can find it,” Brady said.

India, for example, happens to be a place where there are English speaking professionals that come from the Chartered Accountancy world — the equivalent to a Certified Public Accountant in the U.S. — while Australia, Canada and the U.K. are also known for having world class, chartered accountants, according to Brady. 

“It’s a volume play,” said Brady in an interview. “With population growth, and capital formation growth, the demand side for CPAs is just going to keep growing, and I don’t think you are going to have a sudden surge of high school seniors going off to business colleges, and majoring in accounting,” he said. 

When Brady graduated from Bryant University on Rhode Island in 1981, he said there was a huge supply of CPAs relative to demand. “As a firm, you could actually have really high turnover, and that wasn’t your number one issue or challenge. Your number one issue was getting clients, people were plentiful,” Brady, a former chief talent officer of Deloitte, said.

Between the baby boomers retiring and fewer in the millennial and Gen Z generations choosing accounting as a career path, the demand for CPAs has skyrocketed. 

The explosion of tech startups within the past 15 years has contributed to this shortage as well, said Brady. “These kinds of places provide pretty sexy careers so you have a way more people going into marketing, digital marketing, and finance, and not so much accounting,” he said. 

SMEs to suffer the most

Despite the CPA career route not being as popular as it was years ago, and not being as “sexy” as some other now availble jobs in the finance sector, the need for CPAs and high quality audits is not going anywhere, and it is the small and medium sized businesses that will suffer the most, according to Brady. 

“Frankly, I think the biggest companies are always going to be able to hire internal control people,” he said. 

This supply and demand pinch will be felt further down the food chain, and it’s these firms that should consider the potential for international talent. 

“CPAs are the ones that audit the books of brand new startups and you need audited financial statements for the investors. You can’t just rely on the CEO,” said Brady.

Although layoffs at large companies like Microsoft, Salesforce, and other big name tech organizations have made headlines in recent months, small to midsize companies are still very much in a hiring mindset. 

“Companies like the Microsofts of the world, they are letting go of engineers, but if you ask mid market companies, or any company which is 300 employees to 1000 employees, they are still hiring and in that growth mindset,” said Tushar Makhija, founder and chief executive officer at TeamOhana, a headcount management platform, said in an interview. 

Makhija has worked closely with CFOs for several years — the executive has worked with startups since 2008 — and TeamOhana is the fourth company he has built from the ground up. 

In order to avoid operational lag as a result of hiring and onboarding, finance leaders need to be meticulous when it comes to hiring budgets, according to Makhija. 

The key to this, he said, is the marriage between operational reality and hiring reality. 

Tracking and measuring

“The beginning of the process of balancing headcount growth with cost efficiency starts with tracking and measuring,” he said. 

This comes down to not only deciding who it is that you are going to hire, but on determining exactly what all of the costs are associated with that hire. 

“As soon as you onboard someone you have to know, if there's an office space, you have to give them a desk. If you buy them a computer you have to get them access to basic tools like Slack and all of that keeps adding up and that multiple is where you can really run out of money, or you can actually make an operational difference,” he said. 

Between the hot labor market and current macro environment, finance leaders cannot afford to either not have sufficient staff to support growth, or not properly manage their headcount spend. 

Nearly a quarter (23%) of middle market businesses — those with revenues from $10 million to $1 billion — said that the current size of the workforce remains insufficient for market conditions, and over half (57%) plan to “aggressively hire” into 2023, according to the National Center for the Middle Market’s Year End Middle Market Indicator. 

“When you think about hiring budgets, you need to not just think, okay I have a budget to hire 10 people, because it matters who those 10 people are,” said Makhija, “Hiring someone in Latin America will be a different cost than hiring a different candidate in the UK,” he said. 

Getting these hiring budgets right really comes down to an incredibly strong relationship between the CFO and chief human resources officer, as well as the overall health of a business, and hiring plan, cohabitating in the same system, according to Makhija. 

“Once you understand the goals of your company for the year, you then start to say, ‘okay how many engineers do we need? How many salespeople?’... But then what happens is that when the real tracking and when real implementation of this plan starts happening, that decision-making sometimes moves from the CFO office to the recruiting managers, and that is where the discipline starts breaking down,” he said.

Keeping the human element in hiring

“If a company's hiring plan was, ‘I want to hire 10 people in this department or I want to hire five people in that department,’ that takes the human element out of it, and can wind up being more costly,” said Makhija. 

In order to hire effectively and avoid any operational lag, finance leaders need to really understand exactly what kind of hire their organization needs, he said. 

“Instead of looking at just rows in a spreadsheet, we need to start talking about, ‘okay this is our budget for hiring, do we have enough recruiters? Do we have enough managers? Do we have learning resources? What is our onboarding program looking like?’ These are the questions finance leaders should be asking themselves when creating a hiring plan,” he said.

Consumer confidence sagged in February for the second straight month as expectations dimmed for business conditions, wages and employment, the Conference Board said Tuesday. The Consumer Confidence Index declined to 102.9 in February from 106 the prior month, the Conference Board said, noting a large drop in expectations in households aged 35 to 54 and among those earning $35,000 or more.

A gauge of consumer expectations for the coming six months fell to the lowest level since July. Although the proportion of consumers saying jobs are plentiful rose to 52%, their view “appears considerably more pessimistic when looking ahead,” Ataman Ozyildirim, senior director for economics at the Conference Board, said in a statement. “Expectations for where jobs, incomes and business conditions are headed over the next six months all fell sharply in February.”

Consumer spending, which fuels nearly 70% of economic growth, rose 1.8% in January compared with December in the biggest increase in nearly two years. U.S. households felt emboldened by the hot job market, Ozyildirim said. The U.S. added 517,000 jobs in January, pushing down unemployment to 3.4%, the lowest level since 1969.

Yet persistent inflation and rising borrowing costs may erode confidence and begin to inhibit spending, Ozyildirim said, noting that fewer consumers plan to buy homes or autos. “Consumers may be showing early signs of pulling back spending in the face of high prices and rising interest rates.”

The Federal Reserve since March 2022 has sought to quash inflation by raising the federal funds rate in the fastest monetary policy tightening in four decades.

The Consumer Price Index — fueled by energy and shelter prices — rose 0.5% in January in the biggest gain in three months and the producer price index for final demand, a measure of what suppliers charge, increased 0.7% in the largest gain since June.

High inflation and plans by Fed officials to increase the benchmark interest rate at meetings scheduled for March and May have kindled concerns of a downturn this year, according to Alexander Salter, a fellow at the American Institute for Economic Research.

“Consumers are spooked by the prospect of a recession,” according to Salter, an associate professor of economics at Texas Tech University. “Rising rates do pose some challenges for consumer credit, investment and other economy-wide spending areas,” he said, adding that a recession would probably not lead to widespread unemployment.

Twenty-eight percent of economists predict that a downturn will begin before April and 33% expect a slump to start during the second quarter, the National Association for Business Economics found in a survey.

Half of the respondents (51%) believe the possibility that the Fed will excessively tighten monetary policy poses the biggest risk to the economy, NABE said Monday, citing the Feb. 3-10 survey.

CFOs should prepare their companies for a continued increase in borrowing costs, Salter said in an email response to questions.

“For businesses, the most important thing over the one- to three-year horizon is working towards a capital structure that is robust to rising rates,” he said. “Wages will rise too, but probably no more than inflation.”

TechTrans, a logistics company, has sought to adjust to ebbing consumer confidence by improving the quality of its service, President and CFO Len Batcha said.

“We have adopted quality as our main focus, always,” he said in an email response to questions. TechTrans has reviewed the needs of all of its customers and is “budgeting to bolster technology and invest in new hires through local institutions of higher learning.”