With almost 25 years of experience in retained executive search, I am often asked about what we are seeing in the market and what I expect to see moving forward. I feel as though I can speak for the search industry, not just McDermott + Bull, as I have relationships with many individuals across our various global search competitors. In this piece, I summarize what we’ve seen in the executive recruiting space over the last 24 months and make predictions for 2023.
As I believe most are keenly aware, what we have experienced with executive recruiting over the past two years has been historic in nature. Most firms within the search industry have been at or, in many cases, over capacity since Q4 2020.
The drivers for this activity include:
The dramatic increase in executive recruiting, which began in November of 2020, came after almost two full quarters of extremely light activity given the uncertainty of business during the COVID-19 pandemic.
The need to “catch up” and execute new search engagements played out quickly as 2020 came to an end.
With this material increase in recruiting activity, a supply and demand imbalance began, leading to the increase in executive compensation that we’ve all been up against since the early months of 2021.
Within months, the “candidate community” became keenly aware of the dramatic increase in cash compensation and individuals became more likely to answer calls from executive search firms.
We saw some topgrading during this time, but demand fed off of the need to replace those who decided to retire or those who were poached by a recruiter to join a competitor, all leading to the “Great Reshuffle.”
Somewhat surprisingly, we’ve had clients become increasingly open-minded, entertaining quality candidates who may have a couple of recent moves or other items that would have previously been disqualifying factors for their roles.
And lastly, and I get this question quite a bit, during this period we did not see equity increase as a part of the compensation package as we saw with the cash portion of the offering. Whether this be restricted stock unit grants, options, real equity from private equity-sponsored portfolio companies, or synthetic equity, we didn’t see a material change in this area.
As we approach the end of 2022, with talks of a pending recession in 2023, the search industry is experiencing a change. As executive search firms complete existing engagements, we’re all realizing some economic apprehension, leading to a slowdown of new business as corporate leaders navigate the current and future economic states of their organizations.
Some changes we should expect to see in 2023 are:
At the risk of wandering slightly out of my lane, from what we are all hearing, we will certainly be moving into a recessionary period sometime during the first three or four months of the year.
The “candidate market” that we’ve all been navigating over the past 18-24 months will start to change. I’m not suggesting that compensation expectations will be lower than what we’ve seen recently, but I am saying that they will stabilize, and this will allow us all to manage expectations when we collectively begin our search processes.
Here is the tough news: candidates will start hunkering down in 2023, meaning they will be less likely to quickly answer our calls or respond to our various forms of outreach as they look to mitigate personal risk. While not as dramatic as what we saw during the “Great Reshuffle,” candidates will most certainly look to stay with the devil they know versus considering those they don’t.
This reality will sharply contrast to the environment we’ve operated in during the past couple of years, when it seemed like every functional leader was in-play and candidates had more than just a couple of professional opportunities to consider when they were considering a change.
At McDermott + Bull, we’re prepared for the new normal. We became Lean Six Sigma certified in mid-2020 and the process has mandated that we find new areas of effectiveness and efficiencies as the market evolves so that we may thrive in the market moving forward. It’s been a good run, and we’re in the camp of this being a shorter and less impactful recessionary period in the U.S. than in the past.
I’m always available to discuss what’s been presented here. We should feel fortunate that – with all of the readily available information shared by professional economists – the outlook for the 2023 American marketplace is something we can all digest and navigate. Here’s to the close of 2022. We wish you the best over the holiday season, and throughout the year ahead.
Co-Founder + Managing Partner
Chris brings over 20 years of experience in retained executive search. He has a strong track record of success partnering with client organizations to deliver best-in-class talent with private and public companies, private equity firms, and their operating companies. As a trusted advisor to the clients in which they serve, McDermott + Bull has become one of the fastest-growing executive search firms in North America with offices located both domestically and internationally.