HONG KONG (Reuters Breakingviews) - Macquarie is an unlikely target for pay reform. Australia’s so-called millionaire factory is caught in the middle of a wider debate about how financial services firms pay their executives. The prudential regulator is cracking down on remuneration at big banks and insurers, and a group of shareholders is threatening to vote against Macquarie’s remuneration at Thursday’s annual general meeting. That’s odd, because in some senses Macquarie is a role model.
A sweeping 2018 inquiry into financial misdeeds triggered an overdue crackdown on Aussie banks. The Royal Commission into financial services pushed regulators to clamp down on everything from prosecutions to executive pay. The Australian Prudential Regulation Authority on Wednesday proposed new remuneration rules to improve accountability and manage risk across banks, insurers and retirement plans, which will come into force in 2021.
Many of the rules are already the norm at Macquarie, the $30 billion investment bank led by Shemara Wikramanayake. For example, it already defers a chunk of variable pay for its chief executive by seven years, which the regulator is now suggesting should be standard. In a November testimony, former boss Nicholas Moore – who received $13 million for his last year on the job – detailed Macquarie’s pay structure, which includes involving large swathes of staff in profit-share schemes.
Macquarie’s pay policies aren’t perfect. The Australian Shareholders Association has queried the fact that executives seem to hit their performance hurdles year after year, and that it doesn’t disclose enough about how the bonus pool is assigned. Macquarie also eschews total shareholder returns as a goal for long-term performance rewards, saying that the share price isn’t in executives’ control. True, but linking pay to stock returns is also a helpful way of making sure executives and investors are aligned.
That last bit isn’t a problem at Macquarie for now. Total shareholder returns over the last five years have been an annualised 24%, according to data from Refinitiv, nearly triple the benchmark ASX 200 index and far outpacing U.S. peers Goldman Sachs and Citigroup, which returned 5.4% and 8.6% respectively and whose CEOs were paid $23 million and $24 million in 2018. In Australian terms, Macquarie is generous – compared with Wall Street, it’s positively modest.
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