Telstra is preparing for a shareholder backlash against executive pay

  • Proxy advisers are recommending a vote against Telstra’s remuneration report.
  • And Telstra says it’s expecting a “material” vote against the report at the AGM next week.
  • A first strike occurs when 25% of votes go against the remuneration report.

Telstra is concerned that its AGM next week will see a backlash by shareholders unimpressed by bonuses paid to senior executives.

Several proxy advisers, including CGI Glass Lewis, are recommending a vote against the remuneration report, raising the prospect of a first strike against Australia’s biggest telco.

A company records a strike when 25% of votes are against the remuneration report. A second strike would mean an automatic spill of the board of directors.

A strike against Telstra would be the biggest company to be hit since AMP’s remuneration report was rejected by a record 61.4% of shareholders in May this year.

Telstra’s business is being hit by the loss of fixed line income as the NBN rolls out across Australia. Telstra’s full year profit fell 8.9% to $3.53 billion and last month the telco cut its profit guidance.

“We are aware a number of proxy advisor firms have recommended against Telstra’s Remuneration report and a number of investors have also indicated a vote against,” a Telstra spokesman said.

“While we will not know the result until the AGM we are therefore expecting a material vote against the report at the AGM which is naturally of great concern.

“The board will be doing everything it can to address the concerns raised by investors both in respect of the previous 2018 financial year as well as the current year going forward.”

Telstra last year introduced a new incentive plan for executives, called the Executive Variable Remuneration Plan (EVP), combing the previous Short Term Incentive and Long Term Incentive into a simplified variable plan over a five years, supporting “long-term shareholder value creation”.

In 2018, bonuses were cut as shareholder returns fell. The incentive payments for the CEO and Group Executives were reduced by 30% to 66% of their target opportunity.

In 2019, senior executives won’t be getting an increase in base pay. Fees for the chair and board of directors will also be unchanged.

CEO Andrew Penn’s fixed pay is $2.39 million but in theory he can earn five times that with bonuses. Actual pay for Penn in 2018 was $3.74 million, down from $5.2 million the year before.

However, the statutory pay (which calculates a the value of share awards) report shows his pay at $4.5 million, down from $5.6 million last year.

Of that, $1.1 million was cash under the new incentive scheme. Senior executives shared $3.5 million, on top of share awards.

“We consulted widely on the new incentive plan put to shareholders as part of the Remuneration Report that was strongly endorsed at the last AGM, and these discussions will continue as we respond in detail to shareholders once the final results of the vote are known,” the Telstra spokesman said.

The Australian Shareholders’ Association plans to vote in favour of the remuneration report.

“The remuneration report complies very well with ASA disclosure requirements with a table of actual take home remuneration and the use of market value rather than fair value in calculating LTI (long term incentive) grants,” says the association.

Telstra’s AGM is next Tuesday (October 16) morning in Sydney.