Macquarie to Reduce Cash Bonuses After Stock Slump

Macquarie to Reduce Cash Bonuses After Stock Slump

March 31 (Bloomberg) -- Macquarie Group Ltd., Australia’s biggest investment bank, will cut cash bonuses for about 300 senior managers as it seeks to preserve capital and placate investors after the stock slumped.

Chief Executive Officer Nicholas Moore, who earned A$20.6 million ($14 million) last fiscal year, will see the cash component of his profit share fall to 45 percent from 70 percent, the Sydney-based company said in a statement today. Macquarie also said it will increase the proportion of performance-based pay made in stock, requiring it to issue up to A$500 million in new equity or buy back shares in the market.

Australia’s government is seeking to restrict executive salaries and severance payments after reports of companies giving managers raises while firing workers stoked public anger. Macquarie, dubbed the “Millionaire’s Factory” during a 16-year run of rising profits, has cut about 1,000 jobs since Sept. 30, and the stock slumped 62 percent in 2008.

“Relative to the returns they were extracting, which this crisis has revealed weren’t sustainable, they were taking more than their fair share,” said Tim Morris, an analyst at Wise- Owl.com in Sydney. “Now that things have turned sour, people are angry because the executives aren’t going to pay for that, it’s the shareholders that suffer.”

In a report this month measuring executive pay relative to performance among Australia’s 50 biggest publicly traded companies, Wise-Owl said Macquarie “trumps the list.”

Pitt St Performance

Stuart Wilson, chief executive officer of the Australian Shareholders Association, said his organization had viewed Macquarie’s payments as “excessive and poorly aligned with shareholder interests.”

“It was Wall Street pay for Pitt Street performance,” he said, referring to one of Sydney’s main business strips that’s adjacent to Macquarie’s head quarters.

Wilson said he would prefer any share payments Macquarie makes to executives be purchased on the market rather than arising from new equity issues to avoid dilution to existing stockholders. He said he regretted Macquarie’s decision to shorten the withholding period for executive share payments to three to seven years, from the current five to 10 years.

“Shareholders are investing for the long term, so they want to see executives motivated to perform over the same period, so reducing that period would be a negative,” Wilson said.

Earnings Slump

Macquarie last month said full-year profit will plunge 50 percent, ending 16 years of rising earnings, as the value of investments slumps and trading losses mount. The shares have lost 74 percent since peaking in May 2007.

Moore, who became CEO on May 24 last year, had his pay cut 37 percent in the fiscal year to March 31, 2008. His predecessor Allan Moss was paid A$20.8 million in the period, down 38 percent from a year earlier.

Macquarie’s board said the changes are consistent with global remuneration and regulatory trends. The proposed changes will be subject to approval by shareholders at the annual general meeting in July. If approved, they will apply to compensation for the 12 months ended today, as well as to pay in coming years, the company said.

Australia’s government has proposed legislation that would require shareholder approval of termination payments that exceed a year’s salary, rather than the current seven-year threshold. Curbs on severance pay could be linked to job losses.

‘Golden Handshakes’

“The reforms are aimed at curbing excessive golden handshakes,” Treasurer Wayne Swan told reporters on March 18 in Canberra. “The community has been rightly offended by excessive golden handshakes in firms where directors and executives are rewarded for poor company performance.”

The government’s Productivity Commission will also hold a nine-month inquiry into executive pay and bonuses.

Australia’s curbs come after reports that underwear maker Pacific Brands Ltd., which last month cut 1,850 jobs, paid former CEO Paul Moore A$5.8 million in the year that ended June 30, 2008. Hundreds of fired workers protested and Swan called the payout “frankly sickening.”

The limits exceed those the U.S. Treasury is implementing on salaries for executives receiving government funds. Treasury chief Timothy Geithner was criticized in Congress after insurer American International Group Inc., which has taken $182.5 billion in public aid, said it was paying $165 million in bonuses and retention pay to managers.

While Macquarie hasn’t received any state aid, it has sold about A$13 billion in government guaranteed debt, where Macquarie pays the government a fee to borrow its AAA rating.

BLOOMBERG