1.3  The remuneration framework operates effectively  Directors have reviewed the details of the way the remuneration framework operates in practice and consider that it remains  appropriate and is consistent with achieving the overarching objectives. Further details of the way the framework operates are outlined below. The system as it operates for individuals should be  considered as an integrated whole rather than individual elements being looked at in isolation. The Board has discretion to change the remuneration arrangements on an annual basis to meet changing market conditions as well  as to comply with regulatory and corporate governance developments. The way any such discretion has been exercised will be  described below.  The following table provides an overview of the key features of Macquarie’s remuneration system, each of which is described in  further detail below.  51  1.3.1  Howthefeatures operate together to provide shareholder alignment  Key Feature  Applicable to  Section  Executive Committee$^{(1)}$ and  Designated Executive  Directors$^{(2)}$  Other  Executive Directors  Staff other than Executive  Directors Fixed remuneration Fixed remuneration is reviewed annually and reflects technical and functional expertise, role  scope, market practice and regulatory requirements  Performance-based remuneration  1.3.2  Amount of profit share  retained$^{(3)}$  50 to 70 per cent 40 to 70 per cent  25 to 60 per cent dependent  on specific thresholds  Vesting and release of  retained profit share$^{(3)(4)}$  Pro-rata annually over three to  seven years after the year  retained Pro-rata annually over three  to five years after the year  retained  Pro-rata annually over two to  four years after the year  retained 1.3.3  How retained profit share is  invested$^{(5)}$  Invested in Macquarie equity or Macquarie-managed funds 1.3.4  Forfeiture of retained profit  share whilst employed BRC discretion to apply Malus  BRC discretion to apply Malus to certain staff  1.3.5  Forfeiture of retained profit  share on leaving  Unvested amounts are forfeited except in certain  circumstances, subject to disqualifying events$^{(6)}$  Unvested amounts are  forfeited except in certain  circumstances$^{(6)}$  Promotion awards  Staff who are promoted to Associate Director, Division Director or Executive Director receive  an allocation of MEREP awards, set with reference to an $A value, based on seniority  1.3.6  PSUs  Executive Committee only: vest  over years three and four with  exercise subject to achievement  of performance hurdles  n.a. n.a. Minimum Shareholding  Requirement  Satisfied by the requirements of the profit share retention  policy n.a.  Hedging  Macquarie prohibits staff from hedging unvested options, shares held to meet the minimum  shareholding requirement and unvested equity held in the MEREP  1.3.7  No special contractual termination payments for staff  (6) As approved by shareholders in July 2013.  (5) Retained profit share is invested either directly or notionally, and may also include an investment in subsidiaries in the case of acquired  businesses. For staff other than Executive Director, retained profit share is generally (but not exclusively) invested in Macquarie equity. (4) The vesting period for each profit share allocation is established by the BRC, according to the prevailing market conditions and having regard to  regulatory, corporate governance and remuneration developments at the time of allocation. For each year's allocation, once the vesting period  has been determined, it will remain fixed for that allocation. Vesting schedules may vary for certain groups of staff who have become employees  as a result of an acquisition, or for staff in jurisdictions outside Australia to ensure compliance with local regulatory requirements.  (3) The above table reflects Macquarie’s standard arrangements. This year, the Non-Executive Directors have exercised their discretion and  increased the retention rate and amended the vesting and release period for FY2014 profit share to reflect the impact of the SYD  Distribution on MEREP for Executive KMP and certain senior executives.  (2) Executive Directors who are members of Operations Review Committee and others who have a significant management or risk  responsibility in the organisation.  (1) Includes both the CEO and the Deputy CEO. 