1.3.6.1 Performance hurdles for PSUs  PSUs issued under the MEREP become exercisable upon the achievement of two performance hurdles, each applying individually  to 50 per cent of the total number of each tranche of PSUs awarded. The following table provides a summary of the hurdles:  (1) The reference group comprises Macquarie’s major international investment banking peers with whom Macquarie competes and  frequently compares its performance. The reference group for awards made from 2013 is Barclays PLC, Bank of America Corporation,  Credit Suisse Group AG, Deutsche Bank AG, Goldman Sachs Group Inc., JP Morgan Chase, Lazard Ltd, Morgan Stanley and UBS AG.  Jefferies Group Inc. has been excluded from the reference group for awards made from 2013 following its acquisition by Leucadia  National Corp. The reference group for awards made prior to 2013 comprised Bank of America Corporation, Citigroup Inc, Credit Suisse  Group AG, Deutsche Bank AG, Goldman Sachs Group AG, JP Morgan Chase, Morgan Stanley and UBS AG as well as significant  Australian commercial banks within the ASX 100 (ANZ Group Limited, Commonwealth Bank of Australia, National Australia Bank  Limited, Westpac Banking Corporation and Suncorp Metway Limited). 57  EPS CAGR Hurdle  ROE Hurdle  Application to  PSU awards  50 per cent  50 per cent  Performance  measure  Compound annual growth rate (CAGR) in  earnings per share (EPS) over the vesting period  (three to four years)  Relative average annual return on ordinary equity over  the vesting period (three to four years) compared to a  reference group of global peers$^{(1)}$  Hurdle  Sliding scale applies:  GLYPH<150> 50 per cent becoming exercisable at EPS  CAGR of 7.5 per cent GLYPH<150> 100 per cent at EPS CAGR of 12 per cent  For example, if EPS CAGR was 9.75 per cent,  75 per cent of the relevant awards would  become exercisable.  For awards made prior to 2013, the EPS CAGR  hurdle range was 9 per cent to 13 per cent.  Sliding scale applies:  GLYPH<150> 50 per cent becoming exercisable above the 50th  percentile  GLYPH<150> 100 per cent at the 75th percentile  For example, if ROE achievement was at the 60th  percentile, 70 per cent of the relevant awards would  become exercisable.  Rationale for  hurdles  GLYPH<150> Hurdles are periodically examined by the BRC as part of their ongoing review of the remuneration  approach, to ensure they continue to align the interests of staff and shareholders and provide a  challenging but meaningful incentive to Executive Committee members. The BRC considers historical  and forecast market data, the views of corporate governance bodies, shareholders and regulators as  well as peer market practice. No change has been made to the hurdles for FY2014.  GLYPH<150> ROE and EPS are considered appropriate measures of performance as they drive longer-term  shareholder returns and are broadly similar to the performance measures Macquarie uses for  determining the annual profit share pool.  GLYPH<150> ROE and EPS are appropriate for the Executive Committee because they can affect outcomes on both  measures. In contrast, TSR is influenced by many external factors, including market sentiment, over  which executives have limited control. GLYPH<150> ROE and EPS can be substantiated using information that is disclosed in audited financial statements.  The use of a sliding scale diversifies the risk of not achieving the hurdles, provides rewards  proportionate to performance for shareholders and is preferable to an all-or-nothing test which some  have argued could promote excessive risk taking. GLYPH<150> The approach is consistent with that advocated by APRA in not using TSR as a measure.  Being three and four year average measures from 2012 and aligned with the vesting period,  Macquarie’s performance hurdles reward sustained strong performance and are relatively well-insulated  from short-term fluctuations. The time frame used for PSUs should also be considered in light of the  three to seven year deferral of profit share for members of the Executive Committee. Use of an international peer group recognises the extent of Macquarie’s internationalisation. At 31 March  2014 more than two thirds of Macquarie's income and over half of Macquarie's staff were offshore. 