Telstra Corporation Limited (ASX: TLS) Faces Revolt On Executive Pay

  • Oct 09, 2018 AEDT
  • Team Kalkine
Telstra Corporation Limited (ASX: TLS) Faces Revolt On Executive Pay

Telstra Corporation Limited (ASX: TLS) is a telecommunication giant which is involved in the operations of providing information and telecommunications services to businesses, communities, governments, and individuals in Australia and internationally. The company has witnessed a significant loss in the shareholders’ value in FY 2018 and the company is laying off 8,000 staff members. In the light of these events, the shareholders and proxy advisers are questioning the company’s decision to give bonuses at this time, hence they are preparing for a revolt over the executive pay. Following the recent reports, the share price of the company decreased by 0.94 percent as on 9 October 2018.

Some significant proxy advisors like ISS, CGI Glass Lewis, and Ownership Matters, all have recommended voting against Telstra's remuneration report at the upcoming Annual general meeting of the company which is going to be held on 16 October 2018. Several shareholders have also expressed that they are also planning to vote against the remuneration report. However, some shareholders like the Australian Shareholders Association have expressed that they will vote in favor of the of the Telstra's remuneration report.

It is expected that the company might get its “First Strike” against remuneration which could be the highest profile slap down over executive pay in recent times. When 25 percent of votes are cast against the remuneration report, a Strike occurs and if a company receives two strikes in a row it could result in a Board Spill which is a situation where an activist takes a position that the existing directors of a company should be replaced by a new set of directors.  

Telstra’s stocks are widely held, particularly at a retail level. Hence the company is not having any substantial shareholders with a stake of more than 5 percent which means that it is difficult to call up shareholders together to support a cause. However, it is not impossible. The board of the company is very much concerned about “the Vote against” the report in the upcoming annual general meeting and they have assured that they will do everything in their power to address the concerns raised by investors both in respect of the previous 2018 financial year as well as the current year going forward. The board expressed that they have consulted widely on the new incentive plan which is in the remuneration report and they will respond to shareholders in details after the final results of the vote are announced.

The proxy advisory firms are in a disagreement with the new pay scheme which is put in place at Telstra that gives boards more discretion over the level of bonuses. In the FY 2017, the board had decided that the executives should receive 33 percent of their maximum bonus offered under the scheme, however, the company’s directors took the decision to cut the payout. Last year, the chief executive Andy Penn received total package $4.5 million which includes $1.1 million in cash bonuses and share-based payments, restricted and performance rights of $977,000. The proxy advisory firms are concerned about the misalignment between executive pay outcomes and the company's performance. Although the board of the company reduced the Executive Variable Remuneration Plan (EVP) outcome by 30 percent in FY 2017 due to the poor shareholder experience, the proxy advisers are not convinced that it was a sufficient level of discretion.

Due to the significant loss in the shareholders’ value and cutting 8000 job, many shareholders and proxy advisers are planning to vote against the remuneration pay. TLS’s shares traded at $3.160 with a market capitalization of $37.94 billion as on 9 October 2018 (AEST 1:38 PM).

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