Millionaires Factory to slash executive bonuses

Macquarie Group, 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 ($30 million) in the last fiscal year, will see the cash component of his profit share fall to 45 per cent from 70 per cent, the Sydney-based company said yesterday.

Macquarie also said it would 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.

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 Millionaires Factory during a 16-year run of rising profits, has cut about 1000 jobs since September 30, and the stock slumped 62 per cent last year.

"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".

Stuart Wilson, chief executive of the Australian Shareholders Association, said his organisation had viewed Macquarie's payments as "excessive and poorly aligned with shareholder interests". "It was Wall St pay for Pitt St 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 made to executives be bought 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 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.

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

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

Macquarie's board said the changes were consistent with global remuneration and regulatory trends. The proposed changes will be subject to approval by shareholders at the annual meeting in July. If approved, they will apply to compensation for the 12 months ended yesterday, 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 present seven-year threshold. Curbs on severance pay could be linked to job losses.

"The reforms are aimed at curbing excessive golden handshakes," Treasurer Wayne Swan said recently. "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 an inquiry into executive pay and bonuses.

Australia's curbs come after reports that underwear maker Pacific Brands, which last month cut 1850 jobs, paid former chief executive Paul Moore A$5.8 million last year. Hundreds of fired workers protested and Swan called the payout "frankly sickening".

- BLOOMBERG