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## Directors’ Report –  Remuneration Report for the financial year ended 31 March 2014 continued 

Similarly, Macquarie’s shareholder returns continue to outperform the All Ordinaries Accumulation Index (All Ords) since listing. 

<img src='content_image/231138.jpg'>

Note: Indexed to 100 on 29 July 1996 

The All Ordinaries Accumulation Index line in the above chart is based on the S&P/ASX 500 Accumulation Index from 31 March 2000. Prior to this, it was based on the All Ordinaries Accumulation Index. Macquarie TSR calculations here and throughout this Report assume continuous listing. Hence, they are based on Macquarie Bank Limited (ASX code: MBL) data up to and including 2 November 2007, the last day of trading of Macquarie Bank Limited shares, and Macquarie Group Limited (ASX code: MQG) data from the commencement of trading of Macquarie Group Limited shares on 5 November 2007 onwards. 

## 3.4 Macquarie's compensation expense to income ratio is in the lower half of peers 

One guideline used to evaluate overall remuneration levels is the organisation’s compensation expense to income ratio (compensation ratio). The compensation ratio is widely used within the investment banking industry as a broad measure of comparative remuneration levels. It is not, however, the basis on which Macquarie’s profit share pool is created. 

Macquarie’s compensation ratio is compared with that of a group of peers in the following chart. While the compensation ratio effectively adjusts for differences in size between organisations, it is not an entirely satisfactory measure to use in assessing compensation levels because it does not take into account factors such as: 

GLYPH<150> differences in the business mix between comparator organisations. For example, segment data is particularly relevant where the investment banking segment is part of a larger organisation. Some peers are, or have become, parts of larger organisations, often with large retail operations which can distort comparisons 

GLYPH<150> differences in the way that remuneration is delivered (delivery vehicle, amount deferred, vesting timeframe). Different deferral levels and different vesting periods result in different accounting results, even if the underlying quantum of remuneration is the same. The higher the deferral rate, the smaller the portion of reported compensation expense that is actually attributable to pay earned for the current year (i.e. includes an increasing portion of compensation expense attributable to prior year equity deferrals) 

GLYPH<150> performance differences between organisations, including such factors as capital usage and quality of earnings variations in accounting practices used by comparator organisations. The compensation ratio is a non-GAAP measure, allowing peers to adopt different definitions of ‘income’ used in the calculation of the ratio. For example, some peers report the compensation ratio using ‘net revenue’ on a ‘pre-impairment’ basis, whereas others include impairments in net revenue, as does Macquarie 

GLYPH<150> the extent of outsourcing activities. 

Notwithstanding these factors, Macquarie’s ratio of 43.1 per cent is in the lower half of peers. 

