One day all bonuses will be like Macquarie's

As we pointed out a while ago, there appears to be some discontent with Macquarie's most recent bonuses.

Yesterday, the Financial Times said much the same thing.

According to the FT, Macquarie has paid a second successive year of weak bonuses, and its people are not pleased.

The source of the disappointing payouts appears to be a link between bonuses and the bank's return on equity. Macquarie's ROE is down to 10% because it's kept A$4bn on its balance sheet, far more than regulatory requirements.

Macquarie's precise mechanisms for determining bonus dimensions are detailed in its most recent annual report.

There, it points out that:

- Bonuses are based on profits and risk-adjusted capital, not revenues

- Salaries have increased for risk and finance staff (although not necessarily for others)

Long, long deferrals

Most notably, however, Macquarie appears to have a particularly punitive deferral programme.

While most other banks deferred 2009 bonuses over three years, Macquarie is deferring them over seven for its 'executive directors' (senior MDs).

According to its annual report, 50% of executive directors' annual profit share for 2009 is deferred and will vest over years three to seven. From 2010, 40% is deferred and will vest over years three to five.

At most other banks, 2009 payments will be fully vested by the end of year three. The closest comparator to Macquarie is Goldman, whose partners received 60% of last year's bonuses in stock which can't be sold for five years.

Ahead of the curve

Macquarie has plenty of defendants, however.

Headhunters point out that the Australian bank is way ahead of the curve on bonuses. "Macquarie are simply doing what the government and the general public are telling banks to do," says one. "They're retaining capital for shareholders, which inevitably means their staff will be paid less.

"They're ahead of the game. Other banks will be forced into doing the same thing by legislation."

Another agrees: "All banks now say that they pay based on individual performance, business performance, and the greater good of the company. Macquarie genuinely does.

"This does mean, however, that in some years people may not be paid very well."