NEW YORK - Demand for executive talent at Wall Street firms has rebounded strongly, and the coming bonus season may see an exodus to overseas rivals that have no limits on pay, the CEO of the world's largest executive search firm, Korn/Ferry International Inc (KFY.N), said.
Even banks still in the U.S. government's Troubled Asset Relief Program (TARP) -- which restricts pay packages -- are actively seeking executive-level talent, Korn/Ferry CEO Gary Burnison told Reuters on Wednesday. However, banks with no curbs on pay have an advantage, he added.
At the height of the crisis 14 months ago, Korn/Ferry saw its business cut in half in a matter of weeks, as CEOs around the world hoarded cash, giving up on consulting services. But business has come back pretty strong, Burnison said.
Finance, known for over-firing in bad times and over-hiring in booms, often comes back first after a recession, Burnison said, adding there are no signs of over-hiring so far.
Korn/Ferry, which generates three-quarters of its business from senior-level searches, posted a 43 percent jump in financial services fee revenue from the previous quarter, double the increase across all industries. It cited demand for executive searches across the financial sector, except real estate.
Over the last three quarters, there's been a move afoot, musical chairs, as non-U.S., non-UK institutions have tried to make a big foothold in the United States, Burnison said. You've seen people going out of companies that got TARP money into places where the restrictions aren't so great around compensation.
Korn/Ferry reported better-than-expected earnings on Tuesday. It generates 20 percent of its search revenue from financial services, 17 percent from consumer goods companies, and about 25 percent from the industrial sector.
Korn/Ferry first noted a pick-up in financial sector activity five months ago. It has continued, but not at the pace it was. Six of its seven biggest clients are banks.
Asked if TARP participation carries a stigma, Burnison said potential candidates do see a great deal of question marks around TARP companies. He cited global insurance and financial services provider AIG, whose senior staff are leaving or threatening to leave. There is still a great deal of uncertainty around those organizations.
But banks' capital bases have stabilized, and even a large client that is still part of the TARP program is aggressively making moves, Burnison said. He declined to name the bank.
Demand for senior-level recruitment services typically is closely correlated to white-collar employment. But in this economic cycle, recruitment demand has rebounded even while jobs are being lost.
Now, CEOs are thinking about ways to increase revenue in an economy where the U.S. consumer will play a less central role. Mergers and acquisitions are likely to step up.
Many companies, including Korn/Ferry, are also looking toward developing markets for future growth. Korn/Ferry generates about 11 percent of its revenue from Asia, about 6 percent from Latin America. It expects to increasingly but gradually tilt its business away from mature markets in North America and Western Europe, Burnison said.
Markets like India and China also have a demographic advantage, since they don't face the imminent retirement of the huge Baby Boom generation. There are more than twice as many Boomers in the United States than Generation X'ers, the group born in the 1960s through early 1980s.
Eventually, demographic trends will mean younger CEOs and board members, but in the near-term, people are simply going to work longer than they plan.
Because banks received taxpayer aid, executive pay has become an even more controversial issue than before, Burnison said. A push to tie long-term compensation to future performance has new momentum after the financial crisis.
But there may be too much blame on overpaid CEOs for a crisis that stemmed from cheap credit when they -- like professional athletes -- are an elite of just a few thousand people, Burnison said. Basketball star LeBron James earns $100,000 every 21 minutes, he noted.
Still, boards will be more active in setting executive pay, rather than having regulators dictate compensation, said Burnison, whose company also finds board candidates.
There's growing realization in board rooms they need to take responsibility for strategy, succession planning, and things like compensation. That will impact more than (a Washington pay czar).
(Reporting by Nick Zieminski; Editing by Richard Chang)