Macquarie Group proposed far-reaching changes to its remuneration policy yesterday, further aligning it with shareholders' interests and bowing to political and public pressure to curb excessive pay packages.
The salient feature is a move towards paying less cash and increasing the profit share component of bonuses when rewarding senior executives. On average, retained overall compensation would increase from 38% to 50%, according to a press statement.
More than 300 of Macquarie's executive directors, including chief executive Nicholas Moore and members of the group's executive committee, would be affected if, as seems likely, the proposal is approved by shareholders at the annual general meeting in July.
The group's board of directors believes that the new arrangements are "consistent with global remuneration and regulatory trends" and will affect the form of compensation for the financial year ended March 31, 2009, as well as for future years. It would have no impact on the bank's 2009 full-year results, it said.
The decision comes in an environment hostile to big bucks for bankers, but also as Macquarie, known disparagingly as the "millionaires' factory", is expected to post profits for the 2009 financial year that are only half of those earned in 2008.
The greatest adjustment will be for non-committee executive directors, whose cash component will drop from 80% to 50%, with half their remuneration being retained in fully-paid ordinary Macquarie shares and Macquarie-managed fund equity. This is apparently to "reflect an individual executive's responsibilities", and to "strengthen shareholder alignment for Macquarie and the funds".
For the chief executive, the cash part of the profit share will fall from 70% to 45%, so 55% of it will be retained, climbing to 60% once stock options are included. Other members of the executive committee will see their profit share split 50:50 between cash and retention (55% retained including options), whereas before the cash element was 60%.
The statement added that, "while the proposed changes reflect recent remuneration trends, they remain consistent with Macquarie's longstanding approach where staff profit share is linked to profitability and is individually assessed with regard to a variety of factors including contribution to profit, use of capital, funding and risk".
In addition, the board proposes that the vesting and payout schedule for retained profit share should be changed. In future, all retained profit share for committee members and other executive directors will vest for between three and seven years. Currently, different proportions are locked in for different periods.
Also, if an executive director quits in order to join a rival firm, he won't receive the unvested portion. Meanwhile, retirees will have to wait longer to enjoy profits recently earned =- presumably to discourage hit-and-run risk taking that produces a mirage of profitability and the reality of losses later on. So, profit share from two years earlier will be paid out after one year, and profit share from one year earlier would be paid out after two years.
In a further sign of sensitivity to prevailing public opinion, as well as to the protection of shareholders, Macquarie proposes that the payment of the past two years of a departing executive director's unvested retained profit share will be forfeited if it's discovered "that the individual has acted in a way that damages Macquarie Group, including but not limited to acts that lead to a material financial restatement, a significant financial loss or any significant reputational harm to the group or its businesses".
