Macquarie Bankers are famously tough. They will sue, threaten, cajole, argue and buy their way to victory no matter what it takes.
However, in corporate governance terms, the Millionaire Factory blinked in a major way yesterday when a new bonus structure was unveiled for incoming CEO Nicholas Moore that shifts the onus to long-term share price gains, rather than short-term accounting profits.
Last year’s AGM was a watershed when 21.44% of the shares were voted against the remuneration report after a recommendation by the proxy advisory firm Risk Metrics (formerly ISS). All is explained here.
This was one of the 20 largest protest votes against a remuneration report and would undoubtedly have been even bigger this year if the pay policies hadn’t changed.
Nicholas Moore and the remuneration committee clearly concluded that they will get enough attention over pay issues as it is, without having to deal with a growing revolt from shareholders each year.
Under the new structure, rather than only 20% of the profit share pool being withheld in Macquarie accounts for up to 10 years, an additional 35% will be used to buy Macquarie Group shares that must be held for at least three years. Moore starts on this deal straight away and it will be phased in over time for the rest of the executive committee.
The cash bonuses across the group exceeded $500 million last year with both Moore and Allan Moss pocketing more than $20 million each, before tax.
With the stock down near $60, the bankers would be feeling far more pain today if they’d instead been forced to buy more than $150 million worth of shares at close to $90 a pop – and then hang on for three years.
It’s all about long-term alignment of interest. The executive committee have literally pocketed so much cash from short-term bonuses over the years that they probably wouldn’t care too much if Macquarie went broke.
Under this new structure, there will be a far greater incentive to stick around and keep the share price high, rather than just maximising short-term earnings for short-term cash bonuses.
There is no way this would have happened without Peter Costello’s reform which gave us voting on remuneration reports. How ironic that he is now rumoured to be headed into the Macquarie executive ranks on his return from overseas.
Well done to all concerned. It’s a big win for Risk Metrics and the institutions which backed them – plus a better long-term structure for Macquarie as well.
See this Mayne Report package on Allan Moss.
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