'We need to get real' - Telstra chairman hits out as investors revolt on pay

Telstra chairman John Mullen has staunchly defended the telco's performance and the pay awarded to its top executives as investors gave the company its first "strike" over executive pay.

Telstra has been under fire over its performance and investor angst has only been intensified by its proposal to pay chief executive Andy Penn $4.5 million this year as well as payout departing executives. The company's share price has fallen from $3.55 at the start of the year to $3.10 by Monday's close.

Telstra is due to face investors at its annual general meeting in Sydney on Tuesday morning but released a copy of Mr Mullen's speech to the ASX ahead of the meeting.

Telstra chairman John Mullen defended his executives' bonuses last week.Credit:Anthony Johnson

In the colourful address Mr Mullen took aim at the company's critics, its shareholders and their advisors and the entire modern pay-setting system for executives.

He said Telstra's performance needed to be set against global challenges facing telecommunications companies as well as the unique threat posed by Australia's National Broadband Network (NBN). Telstra has announced a massive cost-saving drive in response to the tough conditions including the axing of 8000 jobs.

"There are few precedents in Australia for a challenge of this magnitude and it sits right at the very heart of the issues we faced this year," he said.

"We need to get real about this and acknowledge it for what it is."

Mr Mullen said more than 25 per cent of investors had voted against the adoption of the company's proposed remuneration for its executives meaning Telstra had received its first 'strike'.

The vote is not binding on the company but if Telstra receives a second strike at next year's meeting then the entire board will face a vote for re-election.

"This is deeply, deeply disappointing to my board colleagues and me," he said in a copy of his speech posted to the ASX on Tuesday morning.

Mr Mullen said he could not overstate how much effort the board devoted to setting executive pay describing it as the "single most difficult issue" for large company directors.

Some observers out there seem to think that directors sit around like Witches of Macbeth.
Telstra chairman John Mullen

"Some observers out there seem to think that directors sit around like Witches of Macbeth scheming as to how they can maniuplate incentive schemes to give improper benefit to already excessive executive salaries," he said.

"Let me tell you that nothing can actually be further from the truth."

Mr Mullen said the tough environment meant that it was even more important that Telstra could attract top-level talent and one way to ensure that was to offer appropriate rewards.

Mr Mullen also took aim at shareholders saying some investors who had voted in favour of the pay structure last year had now changed their position even though the remuneration parameters had not altered.

Union poster outside the Telstra AGM.Credit:Jennifer Duke

"Some shareholders want all financial metrics and some want a combination. Some are happy with our level of disclosure, some want more," he said.

"The issue here is clearly the oucome not the scheme and this means that we can make all the changes we like to the scheme and never please everybody."

Mr Mullen made the argument that management could still perform well enough to warrant bonuses in an environment where the share price declined because of factors beyond their control.

He also bemoaned the complexity of modern executive payment arrangments.

"Maybe there is a case for doing away entirely with all the complex schemes and just go back to a fixed salary commensurate with the difficulty of the role, with maybe one half in cash and one half in shares locked up for five years.

"No metrics, no adjustments, no exclusions... and no complicated tables. We could save thousands of hours of RemCo [remuneration committee] meetings, the rem report would be reduced to one page, no more need for the armies of consultants and advisors, and the AGM would be over in half the time."

Mr Penn, in a copy of his speech provided ahead of the meeting, also played up the challenges Telstra particularly when selling NBN products.

"That is why Telstra and all of the telcos selling nbn today are facing a fixed line market where reseller margins are rapidly falling to zero," he said.

"I do not believe we can simply charge our customers more – that’s not the right answer. Nor can we continue to sell nbn making little or no money. Something needs to give."

Mathew Dunckley is business editor for The Sydney Morning Herald and The Age. Based in our Melbourne newsroom, Mathew has almost 20 years as a journalist and editor.

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