Telstra Moves To Quell Shareholder Revolt

To suppress an approaching revolt over executive pay as concern grows among shareholders and proxy advisers over bonuses, during a challenging time for the telecommunications giant, John Mullen, Telstra (ASX:TLS) chairman has moved. Mr. Mullen wrote to Telstra shareholders on Thursday and apologized for not being transparent enough on bonuses paid to Telstra executives in the 2017-18 financial year. Three powerful proxy advisors had recommended voting against Telstra's remuneration report next Tuesday at its annual general meeting, which was followed by the disclosures in the frank letter in the AFR, as well as a number of shareholders expressing confusion over executive bonuses. Mr. Mullen said, “A number of them are disappointed with this year's remuneration outcome”. For Telstra it has been a challenging year as they address significant market pressures increased competition and the impact of the NBN. [optin-monster-shortcode id="wxhmli4jjedneglg1trq"]

Mr. Mullen also said the board recognized shareholders have not had a particularly good run and so it cut executive bonuses by 30 per cent, shares were down nearly 40 percent over 2017-18. A new pay scheme put in place at the $38 billion telco, with which the proxy advice firms have taken the issue, that gives boards more discretion over the level of bonuses. After consultation with proxy advisers and shareholders, Telstra put the so-called Executive Variable Remuneration Plan (EVP) in place. Offered under the scheme, the board decided Telstra executives should receive 33 percent of their maximum bonus, they were in line for more under the EVP, but the company's directors stepped in and cut the payout. Given Telstra's poor performance, however, proxy advisers have said executives should have felt more pain.

Mr. Muller said, “Some shareholders still feel that Telstra’s remuneration results were either caused in higher payouts than shareholders felt were reasonable or not sufficiently transparent, despite this action by the board.” To measure management performance and the reasons as to why these were chosen, perhaps the company did not provide enough transparency around some of the metrics that were adopted. Talking about cash bonuses, Chief executive Andy Penn took home $1.1 million in 2017-18, restricted and performance rights to the value of $977,000 he also received share-based payments, taking his total package to a value of $4.5 million.

By $2.2 million since 2015-16 and by $1.1 million since 2016-17, Mr. Penn's total package has fallen but that has not proved sufficient to repress shareholder anger given dividends have been slashed to 22¢ from 31¢ and the telco's shares have fallen nearly 40 percent. 25 per cent of votes cast against the scheme, a move against Telstra's remuneration report would be the most prominent slap-down over executive pay, since the CBA saw 49 percent of votes and proxies cast against its pay scheme in 2016. Telstra will address the remuneration report at its AGM, by spelling out exactly what will be linked to the scheme. Announced in June, executive pay will be linked to Telstra's T22 turnaround strategy, Mr. Mullen said. Some shareholders are critical of the executive pay outcomes for 2017-18, the Telstra chairman said the board showed disappointment. Telstra share was trading at $3.135 as at October 11, 2018.

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