How to Compete for Talent Without Overpaying in an Inflationary Market
The instinct, when inflation pushes pay expectations up, is to chase them. From where we sit — running senior searches across London and Paris — the firms paying their way out of every hire are the ones losing the discipline that actually wins talent. Here's what works instead in 2026.
When prices rise, compensation expectations follow, and the reflex in financial services is familiar: lift salaries to stay competitive. It worked, after a fashion, in the scramble of 2020 to 2022, when banks raised base pay twice in quick succession to hold onto people. In 2026 that lever is far harder to pull a third time. Cost discipline, internal equity, and the simple cyclicality of advisory revenue all cap how far pay can stretch — and most firms know it.
So the real question is not how to pay more. It is how to compete for the people who matter without building a compensation base you cannot sustain through the next slow quarter. In our experience, the firms that get this right are not the most generous. They are the most deliberate.
Precision beats scale.
Broad, across-the-board increases are the bluntest instrument available. They raise the cost base everywhere while improving hiring outcomes almost nowhere — you end up paying a premium to retain people who were never going to leave, and still lose the ones you were worried about.
The firms competing well are far more surgical. They concentrate real money on the seats that move revenue or strategy – sponsors coverage, energy transition, aerospace and defence, and restructuring – and hold the line elsewhere. That is not cost-cutting dressed up as strategy; it is recognising that a VP in a contested sector and a generalist in a quieter one do not warrant the same treatment, even when the market is loud. Spread the budget evenly and you underpay where it counts and over-pay where it doesn't.
Salary is rarely the whole offer — so stop competing only on salary.
Candidates at VP and director level do not evaluate offers as a single number, and the ones worth hiring almost never move for a marginal uplift alone. We regularly speak to people whose decision turns on scope: the mandate attached to the role, the credibility of the leadership they would report to, and whether the seat has genuine progression behind it or is simply a vacancy to be filled.
This is where firms with shallower pockets routinely win. A well-defined role with real ownership and a clear path up will out-pull a higher headline number attached to a vague mandate more often than compensation-led thinking expects. The corollary matters just as much: if your entire pitch is the package, you are competing on the one axis where someone will always outbid you — and you are attracting the people most likely to leave the moment they do.
Variable pay gives you flexibility fixed pay never will.
One of the most effective ways to compete without inflating the base is to compete on the variable side. Bonus, deferred elements, and performance-linked structures let you reward outcomes without committing to a permanently higher fixed cost — which, for cyclical advisory businesses, is exactly the cost you most want to avoid locking in.
The post-2023 environment makes this sharper still. With the UK's removal of the EU bonus cap, London firms can now weight offers heavily toward discretionary upside in a way their EU-regulated counterparts in Paris, still bound by the cap, cannot. That is a competitive tool — but only if it is handled honestly. Variable pay loses all its pulling power the moment a candidate suspects the targets are unrealistic or the outcomes inconsistent. Transparency about how the number is built is not a nicety here; it is the difference between an incentive that retains and a headline that disappoints.
The cheapest hire is the one you don't have to make.
The most reliable way to avoid overpaying is to stop replacing people you could have kept. Backfilling a strong performer in a thin market almost always costs a premium — a guaranteed package, a notice period bought out, a search fee — and that is before the lost continuity on live mandates. Retention, by comparison, is unglamorous and far cheaper.
We see the same pattern repeatedly: the people who leave are rarely chased out by pay alone. They go when development stalls, when communication goes quiet, or when they sense their compensation no longer reflects their contribution relative to more recent joiners. None of those is expensive to fix if caught early. Firms that benchmark internal equity more than once a year, invest visibly in development, and keep their best people informed are far less exposed to the escalating bidding wars that overpaying tries, and fails, to win.
The takeaway
Competing for talent in an inflationary market does not require an ever-rising pay base. It requires discipline about where money goes, a proposition that holds up beyond the headline figure, intelligent use of variable pay, and the retention habits that keep you out of the market in the first place. The firms that compete this way are not spending the most. They are spending with the most intent — and in 2026, that is the harder thing to copy.
Croft & Co is a Franco-British executive search firm specialising in senior appointments across investment banking and M&A in the UK and France. More from our team at croftandco.com/industry-insights.
