There is little doubt that Allan Moss has been one of Australia’s more successful CEOs since taking over from Tony Berg at Macquarie in 1993. Since 1998, Macquarie’s share price has increased from $14.88 to around $61 currently.

However, Moss’s achievements as CEO have unfortunately been somewhat overshadowed by remuneration controversies at Macquarie which have made Moss and incoming CEO Nicholas Moore two of the highest paid executives in the country. Led by ISS, Macquarie last year received a backlash of more than 20 percent for its Remuneration Report.

Recent share price weakness (which isn’t only specific to Macquarie, but the banking sector as a whole) has not so much proved that the emperor had no clothes, but perhaps that he isn’t as well dressed as many have said. As suggested by Crikey back in May last year (when it was trading closer to $100), Macquarie’s business model may be unsustainable. Its way of buying, packaging and spinning-off assets (and collecting fees along the way) is seriously inhibited in times of high-interest rates and debt funding difficulties.

With investor optimism in Macquarie weakening, its share price has slipped from a high of almost $100 per share to only $60 per share now. An investment made in Macquarie one year ago would have lost more than 30 percent. The AFR noted today that since 2003, Macquarie has been only the 68th best performed company on the ASX. In very simple terms, investors may be justified in asking, why does Macquarie pay its executives more than any other company, when 67 others performed better?

In March 2005, Macquarie was trading at $48 per share. Since then, Macquarie has risen by approximately 27 percent. During that same period however, the All Ordinaries has jumped by more than 38 percent.

In response to critics, Macquarie claims that “effectively 30% of current year (pre-tax) profit share for Executive Directors is retained”. Unfortunately, Macquarie also concedes that “the effective upfront ‘cash bonus’ is about 62.6% for an average Executive Key Management Person.” The obvious problem there is that almost two-thirds of payment is made in cash. Therefore, while Macquarie investor saw their holdings shrivel by 30 percent this year, Moss and Moore had two-thirds of their payment tucked away under the mattress.

The ultimate problem with Macquarie’s remuneration to executives, especially Moss and Moore, is that while Macquarie executives seek to be treated (and more importantly, remunerated) like owners, the executives assume virtually none of the actual risks which are actually faced by actual business owners, such as loss of capital or goodwill (not surprising, given Macquarie are masters of risk management).

Last year, Moss was paid “short-term benefits” of $16 million (Moore received $15 million). Moss’ short-term (non-locked up) bonus alone would have made him the country’s fifth-highest paid executive – regardless of Macquarie’s performance in the subsequent years. As it turned out, Macquarie shares slumped by more than 30 percent – but Moss kept all that cash.

Macquarie yesterday announced a change to its remuneration structure, increasing the long-term lock-up for executives (in the case of Moore, to 35 percent). However, the move is far too little, far too late. (If it really wanted to align executives and shareholders, the bank should lock up 95 percent of pay for 5 – 10 years in MQG shares).

Allan Moss will be rightfully remembered for being one of the Australia’s most successful business leaders, it’s just a shame that he was overpaid to do it.

Peter Fray

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Peter Fray
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