2021 has not been a normal year. One final piece of evidence for its abnormality is that the standard seasonality of the banking recruitment market seems to have been upended. Headhunters are saying that they’re seeing as much as three times the usual level of activity in the fourth quarter. Since few investment bankers are going to be looking around in December this year in anticipation of a disappointing bonus round, that means that there are firms out there who are prepared to buy out the entire 2021 compensation package, effectively paying up for work they never benefited from. And according to Kevin Mahoney at Bay Street Advisors, they’re paying a premium to do so – MD bonuses are being seen up 20-30% across the industry, but some banks are prepared to pay total compensation increases of as much as 50% in the hottest sectors like tech and healthcare.
Not only that, but clients are increasingly asking for “lift-out” deals. This is where you hire a senior MD and simultaneously make offers to all of his or her direct reports. Banks are often a bit nervous about doing this sort of thing – it makes your competition very angry, and there can be some tricky legal issues raised if it is too obvious that you’ve been coordinating the move.
But, for heads of investment banking who started the year in a cautious frame of mind and are now playing catch-up, not being adequately staffed right now is unthinkable. The pipeline of deals for January looks just as strong as it did in 2021, and every month of 2022 that you’re understaffed will be one full of missed revenue opportunities. It seems that heads of department are rationalizing their December hiring strategies to themselves by presuming that even if they’re paying slightly over the odds, they ought to make it back in revenue terms.
That could be a risky move, of course. Anyone making an offer today will be doing incredibly well to get things closed by the year-end. And given that the vast majority of MDs will need to take three months’ gardening leave, that means that your new expensive hire will be walking through the door at the end of March. With the time needed to give everyone their new phone number, get new pitch books produced and so on, a new rainmaker will be aiming to generate revenue in whatever market conditions prevail at the end of April – potentially mid-May.
This matters if you’re a banker, because the other difference from previous hiring cycles is that there seems to be much less use of multi-year guarantees. This means that the end-year hires are not quite as expensive as they look, because although there’s an upfront signing-on bonus, there’s no commitment for 2022 (beyond a degree of unenforceable “indication”) and certainly not for 2023. Anyone taking one of these big offers would be well advised to line up a few quick wins to impress the new boss as early as possible.
Daniel Davies – Read more on efinancialcareers.com