Macquarie Bank, the only large, majority-owned Australian investment bank in the world, announced the retirement of its top executive Allan Moss in May 2008 for a retirement payout of A$50 million. During the year he also received a total of A$30 million in salaries and bonuses bringing his 2008 total annual income of a whopping A$80 million! Last year he earned a total of A$33.5 million of salaries and bonuses taking the spot of Australia’s highest paid executive. His payout is 80 times more than the salary of Kevin Rudd, Australia’s Prime Minister, and 450 times that of the average Australian wage of around A$58,000.
Is Macquarie Bank just being generous to its employees? Or does the top management just have all the powers to abuse the wealth of the Company that belongs to the shareholders, the owners of the entity? This remuneration package is not actually unusual as this is true to other Companies in the US and in Europe. Walt Disney Chief Executive Robert Iger took in a total of US$27.7 million worth of compensation in 2007. The Company also provides him with a luxury yacht and a mansion!
In general, the top executive remunerations are decided by the Board of Directors who represents the shareholders in the Company. The Board normally has remunerations committee that reviews the salaries and bonuses of top management. It should be noted that ownership and management of Companies are separated. The structure is comparable to a principal-agency relationship where the management acts as an agent of the shareholders. Most often, conflicts of interests between owners and managers arise. The shareholders interest is to increase their wealth by increasing the market value of the Company through increase in share prices or increase in dividends payout. The Company’s management’s interest is to increase their wealth also but through salaries and bonuses they can get from the Company.
In recent years, there have been a great emphasis given to good corporate governance due to some corporate scandals like Enron. Investments analysts have a theory that Companies with good corporate governance are good investment targets as there has been a strong positive correlation between share price and good corporate governance. One of the factors being considered in Corporate Governance is aligning the interests of the management with that of the shareholders. The vehicle to do this is to give remuneration to the management whenever the Company is doing well and punish them when the Company is not doing well. The perfect example of this is a bonus that’s tied to Company’s profit and employees stock options. When the share price of the Company goes up, the value of stock options also goes up. In this way, both the shareholders and the managers are happy when Company’s profit is high and stock prices are skyrocketing.
The question is how much remuneration is enough? Is A$80 million annual remuneration worth the idea of aligning the manager’s interest to that of the shareholders? Or does the management taking already the wealth of the shareholders by these excessive salaries? There are no definitive answers to these questions as the debates have been going on. I can only say I will be happy to take over the position of Allan Moss in Macquarie Bank!
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It’s the shareholders who ultimately approve the remuneration of the executives. Furthermore, for the 11 or so years Alan Moss has been at Macquarie, they have had record profits. So I don’t think the shareholders have much to complain about.
Australia would have its first failed bank if you were to take over Wilson.
I think it is important to take into account the wealth that the Senior Executives create for the company. Macquarie has grown a huge amount during Moss’s tenure. He really led the company to a much higher worldwide profile as well as presiding over a period of growth unrivalled in the company’s history.
For instance, on 6th February, the day that Moss announced his retirement, Macquarie Group shares fell from $62 to $61.10. With this drop of $0.90, based on Macquarie having 274 million outstanding shares represents a fall in Market Value of approximately $245million. As there were no other major announcements on that day, it is reasonable to assume that a large part of this fall was caused by Moss’s announcement. Thus, the market valued his involvement with the company as up to $245mand he was only paid out $50 million.
In other words, I think the market and shareholders would have paid him even more.
That is one factor auditors should watch out for, when bonuses are tied up with earnings or stock prices.
Mr. Wilson, when you get to that level, don’t ever forget about me, your poor friend from the Philippines.
I know the amount it is absurd that one retiree received that much but Allan Moss takes out what he puts in. He has spent half his life studying and learning, countless hours of hardwork & overtime, sleepless nights due to copious amounts of pressure, stress and anxiety, and most of all can you imagine how much time he spent away from family and friends to get to a position where he has to run a multi-billion dollar company. All I can say is… people give you what they think you deserve… a lot of people may not agree with his remuneration but people who matter (i.e. Macquarie Shareholders) reckons Allan Moss is worthy of it.
Papa Wilson seriously if you get to that position… whats going to happen? What about the hours and hours you spend on blogging? Also, you can’t just have a couple of hours study time past 1am after you’ve spent the whole day prancing around Melbourne? Furthermore I don’t reckon you can keep away from your lovely friends and family! So think again mate!
Love reading the posts excusing this grotesque payout. These people make their money via the most parasitic methods, completely divorced from the real economy. They pump money into subprime loans and food commodity futures creating bubbles that ultimately destroy the lives of hundreds of millions of ordinary working people, while a handful of the worlds wealthiest people make an extra few million that they don’t know what to do with. One billion people are about to starve because of this blind paratisicm.
These people create nothing, they do nothing. They are a blight on all of mankind, the sooner we are rid of them the better.
Hi David, thanks for visiting my website and making a comment. I agree with you that there are a few handful people who enjoy so much wealth while there are millions out there sufferring from hunger and poverty. It’s unfortunate that the world’s wealth is not evenly distributed.
Strong words you have there, David.
Wilson, you are beginning to sound a bit too lefty for my liking. You know my old saying, better dead than red!
Better Rudd than Red?
Eh Sir Nigel?
Yes Roderick, that sounds about right.