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RCQ Associates Market Update - Europe 2023

As we enter 2023, we are seeing a somewhat subdued volume of new roles across Credit Ratings and Debt Capital Markets compared to the previous two years and a return to a more “usual” environment of replacement hires and some new hires. Read on for RCQ Associates view of the 2023 hiring climate.

• A slight increase in unemployment, mainly at the senior level, as more highly paid Directors are considered first during cost reductions. Very low volumes of job cuts at the junior level.

• Continued shortages of more junior profiles (2-7 years) as the supply of qualified candidates is still lower than the demand, mainly due to lower volumes of training schemes and junior employees entering the industry vs historical averages.

• Turnover levels likely to be higher than average – with less time in the office and “informal social events”, there are less “emotional” ties to employers. Many employers are increasingly focused on a wider “return to the office”, which may also cause friction between employee and employer with regards to flexibility expectations.

Bonus levels – expectation management has begun and bonus pools are expected to be similar or in many cases lower than previous years.

Uncertainty – given the economic outlook we are seeing less candidates willing to consider a move (concerned about a “last in first out” policy).

Wage inflation – after record wage increases in 2021 and 2022, there continues to be an expectation of wage growth given current inflation levels. However wage growth for those remaining at the same seniority level at the same firm is likely to average in single digits (3-6%), rather than the double digit growth (10-15%/15-20% growth for those with 2-4 years experience), we have seen over the past two years.

• Q4 2022 was an extremely challenging time for credit markets as high inflation coupled with interest rate hikes, resulted in a severe reduction in issuance and hence hiring volumes. Whilst the past six months have seen a decline in hiring volumes vs 2021/H1 2022, competition for talent; particularly in London, Frankfurt, and Stockholm, remains competitive. The majority of firms within credit & structured finance markets appear reluctant to cull staff, due to persistent talent shortages.

H2 2022 has experienced a noticeable decline in the volume of new openings versus H1 2022. RCQ expects this trend to continue until late Q2 2023 as bank and buy side hiring tapers off. During Q4, a significant number of institutions implemented hiring reviews/pauses. These are now being slowly lifted, but only hires deemed to be high priority or “strategic” are currently being approved. At present, not all leavers are being automatically replaced. Within Credit, the highest volumes of hiring have been concentrated within Private Credit, Commercial and Quantitative disciplines. The largest volume of roles advertised in January 2023 were within the Engineering and ESG sectors.

Demand for talent has remained at its highest for candidates with circa 3 – 8 years’ experience, of which 68.7% of offers through RCQ in H2 2022 were for candidates at “Associate” / “AVP” / “Associate Director” level. This is also where we continue to see the highest levels of salary inflation and candidate turnover, particularly in London and Frankfurt. The average tenure for candidates in their current role was c2 years in London, and unusually high for Frankfurt at c3 years.

• RCQ observed a decrease in candidate leverage during salary negotiations, which we expect to continue during H1 2023, but salary inflation is likely to persist within the major financial hubs, albeit at lower levels than 2021/2022. Our data (based on external credit rating moves), observed that the average salary increase from candidates receiving an offer from RCQ was 26% across all levels in H2 2022, down from a high of 34% in H1 2022. Salary inflation was by far most significant for those in the 3-5 & 5-7-years’ experience range, which is where RCQ has observed the greatest competition for talent. Salary increases were noticeably lower for those with 8-10 & 10+ years of experience. Whilst this suggests that candidate negotiating power has reduced from H1 2022, this wasn’t observed at all levels and as much as might have been expected during an economic downturn.

Remote & Hybrid Working – RCQ continues to see a decline in numbers working remotely, particularly for front office C&IB which has largely returned to pre-pandemic levels. As of December 2022, only 1.3% of openings at credit rating agencies were advertised as fully remote, none of which were credit ratings roles. RCQ expects to see a greater emphasis from employers on returning to the office in 2023, although with a wider range of office locations being on offer.

• RCQ data shows that candidates are increasingly accepting counteroffers & turning down offers post verbal acceptance in favour of a rival offer. We have seen a 4% increase in offers being rejected in comparison to H1 2022. 58% involved a candidate receiving and ultimately accepting a rival offer, of which 76% either consisted of a hedge fund, private equity firm, or an investment bank. 34% involved a candidate accepting a counteroffer from their existing firm- 12% up from H1 2022. This suggests that despite the economic slowdown and decline in hiring volumes, firms remain intent on retaining staff rather than losing out to rival institutions. The most common reasons candidates gave for accepting a rival offer were a higher salary/total compensation package, followed by a perceived clearer pathway for promotion and long-term career growth potential.

• Hiring into Sales and Commercial teams has changed significantly. In H1 2022, organisations prioritised qualified candidates with some flexibility on prior sales performance. This has now shifted, with an increased focused on their track records. Sales professionals have been challenging sales targets for 2023 given the economic environment, and there remains an increased desire for those with a track record of obtaining new clients.

• Improving diversity in the workplace is increasingly being discussed. While there was a desire to improve on this during 2021 and 2022, the severe shortage of candidates resulted in a lack of focus on this. With less entrants to the industry, the bottom-up approach of finding strong talent from diverse backgrounds within firms was impacted. Female participation in the workplace reduced, particularly in 2020/2021 due to covid and more work needs to be done to re-attract those who may have exited. Return to work schemes, a more diverse pool entry level joiners and clearer routes for progression all need to be improved throughout 2023. Many firms are competing for similar talent, so organisations need to be flexible when making decisions to address hiring needs, to create future balance within the workplace. Inclusivity remains a key focus area when hiring new employees, but this must also include retention of current employees from minority backgrounds.

• Hiring in London remains a challenge for employers unable to sponsor a visa, as the pool of candidates with UK working rights is diminishing. This is in part due to talented professionals moving elsewhere and a post- Brexit era, although London remains an attractive location for those open to relocating.

• Hiring in Frankfurt has been challenging with longer notice periods and being perceived as “less glamorous” than other major hubs. Volumes of openings remain high and there are significant challenges when trying to hire fluent German speakers. We have noticed over the past 12 months that more candidates (particularly at the junior level) are open to a move to Frankfurt, where their friends/network have made the move and spoken positively of life in the city.

• Hiring in Paris has been less impacted by shortages when compared to other hubs, although labour market regulations have resulted in fewer openings than we would have expected.

• Madrid has been a successful location for hiring, as has Milan. Both have appealing factors including culture, climate and lower cost of living.

Stockholm has been a busy market for open roles, but a shortage of candidates has resulted in vacancies being open for longer than all other European hubs.

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