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 reduced “informal social events”, there are concerns that employees may no longer feel an “emotional” tie to their employers. Many employers are increasingly focused on enforcing a wider “return to the office”, which we are starting to see result in 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 and2022, 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 with2-4 years experience) we have seen over the past two years.
While the past six months have seen a decline in hiring volumes from the heights previously observed throughout 2021 and H1 2022, competition for talent, particularly in New York and Chicago, remains competitive.
Despite certain industry layoffs (primarily concentrated within tech & investment banking), the majority of firms within Credit & Structured Finance markets appear reluctant to cut staff due to persisting talent shortages.
• H2 2022 has experienced a noticeable decline in the volume of new openings versus H1 2022. We expect this trend to continue until mid to late Q2 2023as bank and buy side hiring is tapering off. DuringQ4, a significant number of high-profile institutions temporarily instructed hiring reviews/ pauses; these are now being slowly lifted, but
only high priority or “strategic” business hires 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, Esoteric/Non-Traditional ABS, Structured Credit/CLOs, Renewable Energy & ESG.
• Demand for talent has remained at its highest for candidates with circa 3–8 years of experience, of which 73.6% of offers through RCQ in H22022 were for candidates in the “Associate” / “AVP” / “Associate Director” ranges. We continue to see the highest levels of salary inflation and candidate turnover for these roles, particularly in New York and Chicago where the average tenure for candidates in these roles was 2-3 years.
• RCQ has continued to observe an increased willingness and focus on hiring outside of the traditional financial hubs, primarily due to the lower levels of talent competition, salary inflation and turnover in comparison to the faster moving New York and Chicago markets. For H2 2022, 32% of offers delivered by RCQ were for New York based roles, which represents a12% decline on H1 2022. Notably,30.5% of offers were for Toronto- based roles (a 22% increase). This is likely due to lower labour costs, a wider talent pool due to easier access to Canadian visas vs the US. Toronto hiring was primarily concentrated on Credit Ratings (including Structured Finance) & Financial Data hires, rather than front office Capital Markets roles- which are still heavily New York centred.
• Several banks and major financial institutions looking to expand their US presence outside of New York, particularly in Florida, where Goldman Sachs, BNP Paribas and TD have all expanded their office footprint in 2022. We expect this trend to continue as financial institutions continue scaling their presence in warmer, lower tax states like Texas and Florida. We expect this to be attractive to candidates looking to exit the traditional financial centres, as firms place a greater emphasis on returning to the office.
• 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 on returning to the office in 2023, although with a wider range of office locations being offered.
• 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 counter offer 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.
• Interview process – RCQ data showed that the average time from resume submission to offer was 36 days, highlighting that firms are continuing to hire at pace to secure the best candidates, despite a decline in new vacancies. The average time was lowest for candidates in the 3-5 years’ experience range, averaging 28 days, which corroborates that employers are aware of increased competition at this level for candidates.
• 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, amore diverse pool entry level joiners and clearer routes for progression all need to be improved throughout2023. 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 talent retention of current employees from minority backgrounds.
• RCQ has seen significantly improved diversity statistics when hiring in Canada. The more flexible visa regime and higher volume of migration has resulted in a much more diverse workforce.