Macquarie Bank shares are up another $1.80 to $88.80 today as the lines get drawn for what should be a fascinating showdown about executive pay at its annual meeting in Sydney on 19 July.

Despite predictions of a protest last year, Macquarie Bank’s remuneration report was endorsed by a stunning 94% of shares voted. Whilst proxy adviser Corporate Governance International and the Australian Council of Superannuation Investors both recommended their clients vote against, the most powerful player in the space, Institutional Shareholders Services, recommended a vote in favour.

This time around, CGI has produced a few paragraphs recommending the remuneration report, whilst ISS has come up with seven pages to justify a changed position recommending against.

Gideon Haigh’s cover story on Macquarie Bank in the latest edition of The Monthly makes the point that its global position is starting to attract some serious international attention.

In a disturbing development, the ISS report attacking Macquarie’s pay structures was largely ignored by the Fairfax press at the same time as Macquarie and Fairfax were teaming up to carve up Southern Cross Broadcasting. The Australian’s John Durie broke the story yesterday and within 24 hours it was picked up by both The Wall Street Journal and The Financial Times.

ISS is basing its backflip on the inclusion of a $300 million one-off pre-tax profit from the sale of the bank’s stake in Macquarie Goodman, now Goodman International. It contends that only about $90 million of this profit finished up with shareholders.

I don’t buy this argument. Macquarie Bank is constantly buying and selling assets. It’s the core business. If it sold out of Macquarie Media, Macquarie Airports and Macquarie Communications Infrastructure Group, pre-tax profits of more than $700 million would be booked and I don’t see why these shouldn’t be included in the bonus pool, which soaks up 50-57% of pre-tax gross profit.

ISS also rails against Macquarie’s excessive use of cash bonuses based on short-term paper profits. This is true, but more than 20% of these bonuses are locked away inside the bank for up to 10 years as a hand-cuff which has clearly contributed to the very long tenure of the top operatives at the Millionaire Factory.

So will Macquarie’s shareholder vote down the remuneration report? Barclays with 5% and Colonial with 6% have a tough decision to make, because both have profited enormously from their investment and also rely on Macquarie to get a decent allocation in the various capital raisings it does in the Australian market.

I’ll be voting in favour. Why change a winning formula? Any offers of proxies would be much appreciated as you don’t have much credibility at a meeting speaking for a solitary share.

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Peter Fray
Peter Fray
Editor-in-chief of Crikey
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