Talk about not being able to land a blow on The Millionaire Factory.
The Australian Shareholders’ Association and Crikey both had decent
whacks at yesterday’s AGM but it didn’t resonate with the other 300
shareholders at The Westin Hotel, who just love the board and management
team which have lifted the share price from $6 to $64 in ten years.

ASA chairman Stephen Matthews opened the questions session with a
strong and long speech about Macquarie Bank “crossing the line” on
pay. Chairman David Clarke batted it back with his usual line about
Macquarie’s people being its biggest asset and why would he change a
successful profit-sharing formula that had worked for 30 years.

However, Moss added that the bank’s reputation was its next most
important asset, which opened up an opportunity for a follow-up
question which AAP reported as follows: “Shareholder Stephen Mayne
questioned whether Macquarie Bank’s reputation had been damaged by the
‘stratospheric’ levels of pay. Mr Clarke did not answer the question.”

The point I made was that even someone like Paul Keating had publicly
sledged the $18.5 million CEO Allan Moss was paid last year. Keating is
both a former prime minister and a former business partner of
Macquarie’s in Indonesia and China, so if even he was publicly outraged
there comes a point when this must damage Macquarie’s reputation, plus make it harder to do lucrative
infrastructure deals with various Labor governments across the country.

Clarke certainly cranked up his rhetoric this year, saying that without these
huge pay deals, everyone would leave and “there wouldn’t be a bank.”

This is true up to a point, but you need to look at both elements of
the executive pay largesse at Macquarie. The first is the formula where
staff share in about 40% of the gross profits. This money is not just
handed over – it’s drip fed over ten years and if anyone leaves to
join a competitor, they forfeit all their deferred bonuses and options.
This system is what keeps dozens of millionaires working when they
don’t have to. There are always millions on the table that get lost if you leave.

The second element is the Macquarie Bank options scheme, which is the
most lucrative in the country, having produced an estimated $2-3
billion in gross profits for about 1,500 bankers since 1996. For
in the year to 31 March 2005, Macquarie issued 10.3 million new options
at an average strike price of about $34. With the shares closing at $64.01
yesterday, these are already showing paper profits of more than $310

Then you have the 6.38 million options which were actually exercised
last year at an average strike price of about $25. These are now
ordinary shares showing paper profits of $250 million. In other words,
in addition to the top ten Macquarie executives sharing in almost $100
million last year, $560 million in paper profits from
options was generated for senior staff right across the bank over the 12 months to 31 March.

I recited all of these statistic towards the end of the meeting in an
attempt to generate some opposition to the proposal to issue even more
options – 226,000 with a face value of $14.4 million – to Macquarie’s
four executive directors, Clarke, Moss, co-founder Mark Johnston and
former ASX chairman Laurie Cox, all of whom should arguably be on the
Rich List with net wealth exceeding $110 million.

Alas, only about ten shareholders supported the argument that with 13%
of Macquarie’s capital already outstanding as options – that’s 28.3
million options carrying more than $1 billion in paper profits and
worth $1.8 billion at current market values – issuing even more options to these executive directors was “a bridge too far.”

The support from proxy-voting institutions was a little bit stronger as
you can see here.
As usual, no media outlets bothered to report the
results but there was a minor protest against chairman David Clarke
getting another 25,000 options when he already has a $70 million equity
exposure to the bank. Still, 103.6 million votes in favour and ten
million against is hardly enough to stop the lads coming back for
another tranche next year.

Peter Fray

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Peter Fray
Editor-in-chief of Crikey