Breakingviews – Macquarie is both a target and a pay model

HONG KONG (Reuters Breakingviews) – Macquarie is an unlikely target for wage reform. The so-called millionaire factory in Australia is in the midst of a huge debate about how financial services companies pay their leaders. The prudential regulator is attacking the compensation of major banks and major insurance companies and a group of shareholders is threatening to vote against Macquarie's pay at Thursday's annual general meeting. It's strange, because in some ways Macquarie is a model.

An extensive investigation into financial mischief in 2018 triggered a late crackdown on Australian banks. The Royal Commission on Financial Services has urged regulators to do everything from prosecutions to executive salaries. The Australian Prudential Regulatory Authority on Wednesday proposed new remuneration rules to improve accountability and risk management for banks, insurers and pension plans, which will come into effect in 2021.

Many rules are already the norm at Macquarie, the $ 30 billion investment bank run by Shemara Wikramanayake. For example, it is already deferring a portion of its CEO's seven-year variable compensation, which the regulator now suggests should be the norm. In a November testimony, former boss Nicholas Moore – who had received $ 13 million for his last year of work – detailed Macquarie's pay structure, which involves a large number of employees in profit-sharing schemes.

Macquarie's salary policy is not perfect. The Australian Shareholders Association questioned the fact that management appeared to run into performance hurdles year after year and did not sufficiently reveal how the bonus pool was awarded. . Macquarie also avoids total shareholder return as a long-term return objective, stating that the share price was not under the control of the executives. Certainly, linking compensation to stock returns is also a useful way to ensure that leaders and investors are aligned.

This last point is not a problem for Macquarie at the moment. Total returns for shareholders over the past five years have been 24% annualized, according to Refinitiv data, nearly three times as much as the ASX 200 benchmark and far exceed those of their US counterparts. Goldman Sachs and Citigroup, with respective returns of 5.4% and 8.6% paid $ 23 million and $ 24 million in 2018. In Australian terms, Macquarie is generous – compared to Wall Street, it is positively modest.