MACQUARIE Group chairman Kevin McCann has been urged to undertake a major overhaul of the company’s long-time compensation structure.
The call came as Mr McCann was criticised for not keeping up with the company’s dramatic transformation from a small investment bank into a global financial services player.
As Macquarie prepares to rule off the books on its second-best annual profit ever, analysts at UBS yesterday told clients the “debate that has to be had” was about more appropriately aligning the calculation of its staff bonus pool to operations.
Almost 80 per cent of income is derived from the three “annuity” divisions — asset management, banking and financial services, and corporate and asset finance — up from 32 per cent in 2008 when investment banking operations dominated. “It is becoming increasingly difficult for Macquarie’s board to justify holding on to its antiquated bonus calculation,” UBS analyst Jonathan Mott wrote to clients. “If Macquarie changed its bonus pool calculation to reflect its new business mix and much greater reliance on its balance sheet, a more efficient remuneration structure could be achieved.”
While the specifics of remuneration are unknown, it includes a base salary and a “profit share” for staff, or bonus pool, based on profit and return on equity (ROE).
According to UBS, it is the group’s largest discretionary expense, and its non-investment banking units should be benchmarked against more relevant peers to return ROE to pre-global financial crisis levels.
The total staff expense-to-income ratio could fall to 35-38 per cent, compared to 46 per cent with Macquarie’s “outdated investment banking structure”.
“Compensation per full-time employee would obviously fall, but remuneration levels would remain consistent with previous years in the post financial crisis environment,” Mr Mott said, noting it would fall from $304,000 this year to $248,000.
Macquarie shares surged to $74.99 — their highest level since 2008 — as stronger trading income, the falling dollar and stimulus from global central banks drives profit upgrades for shareholders.