Consulting firms freeze starting salaries in bid to shore up profit

The world’s most prestigious consulting firms have frozen US starting salaries for new graduates, as a war for talent that sent pay soaring after the pandemic gives way to tougher competition for jobs.

McKinsey and BCG are among the firms holding salaries at 2023 levels for undergraduate and MBA students taking up positions next year, according to people familiar with the matter.

That stands in stark contrast with the situation a year ago, when firms raised salaries by the largest amount in more than two decades. The persistence of historically high inflation means the real-terms value of a new consulting job will be sharply lower next year.

“It is the hangover after the party,” said Fiona Czerniawska, chief executive of Source Global Research, a consulting sector analyst. Faced with declining customer demand in some areas of their business, and pricing pressure across the board, consulting firms are trying to shore up profits by curtailing hiring and holding down pay, she said.

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“There’s a worry that a market that got considerably softer over the last 18 to 24 months will get softer again before it starts recovering,” she said. “Firms want to make sure that their partners are retained by having suitably high profits, and one way to do that is to put a brake on salary inflation and to stop starting salaries going up in a spiral like the last year or two.”

McKinsey pays a base salary of $192,000 (€178,000) for a new recruit from business school, according to Management Consulted, a company that coaches students through consulting firms’ interview process and tracks pay via offer letters. The base salary for a candidate with an undergraduate degree is $112,000.

Bain & Co offers the same, and BCG pays $2,000 less, according to Management Consulted. Signing and performance bonuses can swell year-one pay to $267,000 or more for MBAs and $140,000 or more for undergraduate hires, it found. The firms do not publicly disclose their pay.

Namaan Mian, chief operating officer of Management Consulted, said that he had seen no firm raising base salaries.

“It’s the toughest, most competitive market I have seen in 10 years. You’ve got fewer open spots this year and more people applying for those spots because of the flight to safety from investment banking and tech.”

Some firms had asked their 2023 hires to push back their start dates to 2024, further slimming down the need for additional hiring on campuses this year, he added.

A person familiar with McKinsey’s recruiting said that it is not unprecedented to hold starting salaries flat, and it has done so in about 10 of the past 20 years.

A person familiar with BCG’s practices said: “When we take jumps they tend to be big and then we plateau for a bit. This is more of a plateau year.” – Copyright The Financial Times Limited 2023