Macquarie Bank released its results for the year ending 31 March 2009 this morning and as expected, announced a sharp decrease in revenue (down 33% to $5.5 billion) and profit (down 52% to $871 million).

Macquarie noted that “the extremely challenging global markets and economic environment resulted in a significant increase in the level of write-downs and provisions during the year to $2.5 billion. The majority of write-downs… stem from strategic investments in Macquarie managed funds.” Due to the writedowns, the Group’s return-on-equity fell dramatically from 23.7% to 9.9% (Macquarie’s RoE has traditionally ranged between 18% and 30%).

Macquarie noted in its Remuneration Report that “while Macquarie Group outperformed its peers to report a profit for this year, overall performance declined on prior years. Overall at risk remuneration declined accordingly.”

While they won’t be lining up for food stamps, remuneration paid to Macquarie’s executive team fell sharply this year. CEO Nicholas Moore collected a relatively miserly $2.6 million in cash. Macquarie claimed Moore’s total remuneration was only $290,000 (due to $5.8 million drop in the value of previous years profit share which remains escrowed), however, that is largely an accounting adjustment. Moore’s cash payments did still fall significantly from $19.2 million last year to $2.6 million. Macquarie’s recent performance highlighted the historical absurdity of investment banks dolling out large cash bonuses to executives based on what turned out to be illusory profits (as illustrated by Macquarie’s multi-billion dollar write-down this year).

CFO Greg Ward saw his remuneration fall from $5.1 million to $3.1 million while his cash pay dropped from $3.9 million to just over $2 million. Macquarie Capital head, Michael Carapiet collected $2.5 million in cash (down from $13.6 million in 2007) while his restricted profit share dropped by almost $4 million. Treasury and Commodity boss, Andrew Downe, faired slightly better, taking home $3.8 million cash and around $3 million in equity payments (while losing $3.7 million on restricted shares). Downe’s Treasury and Commodity group earned $509 million last year, down from $602 million the previous year (but still contributed the majority of Macquarie’s total earnings for the year of $871 million).

In total, cash payments to Macquarie’s executive team fell from $102.4 million in 2007 to $21.9 million last year. The magnitude of the drop is best shown by the fact that former CEO, Allan Moss, was alone was paid $27.9 million in cash during the corresponding period last year, 27% more than the entire executive group earned this period.

It is difficult to assess the performance of Macquarie’s remuneration structure. On one hand, remuneration paid to executives decrease substantially in line with the group’s weak profit performance. On the other, executives received such grotesque payments in prior years any other result would be utterly unconscionable.

Even though his remuneration decreased substantially, CEO, Nick Moore, still collected a $2.1 million short-term cash bonus while the Group’s earnings fell by more than 50%. Moore is also able to console himself with the $42 million in cash he received in the previous two years. Ironically, several hundred million in write-downs stemmed from Macquarie’s investment in satellites such as Macquarie Infrastructure ($153 million written off), Macquarie Communications ($113 million write-down) and Macquarie Media ($93 million write-off). Moore is considered by many to have been the architect of the Macquarie Model which led to the creation and investment in those infrastructure vehicles.

From a governance perspective, Macquarie’s remuneration structure has improved substantially in recent years. Fortunately for Macquarie’s former executives, it was coming off a high base.

Peter Fray

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