- Telstra is trying to head off a vote against its remuneration policy at its AGM next week.
- Shareholders are upset that bonuses are being paid to executives when the share price has fallen.
- Chairman John Mullen has apologised for lack of transparency.
Telstra has written letter to shareholders, apologising for a lack of transparency over senior executive bonuses and hopes to head off a shareholder revolt at the annual general meeting.
Proxy advisers are recommending a vote against the remuneration report of Australia’s biggest telco at the shareholder meeting next week.
That could mean a first strike which happens 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 chairman John Mullen says he knows some shareholders are disappointed with this year’s remuneration outcome.
“We set what we believed was a demanding plan for our management team in the face of these challenges and even though many of these were met, we recognise that this has not translated into positive outcomes for our shareholders,” he writes.
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.
“We recognise that despite this action by the board, some shareholders still feel that our remuneration outcomes were either not sufficiently transparent or resulted in higher payouts than shareholders felt were reasonable,” says Mullen.
“With hindsight, we recognise we perhaps did not provide enough transparency around some of the metrics that we adopted to measure management performance and the reasons as to why these were chosen. For this we apologise.”
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.
Mullen says Telstra’s earnings and share price have been under pressure due to market disruption and competitive intensity.
“We believe that in challenging market conditions, motivating and incentivising management becomes even more critical to the future success of the business and maximising shareholder value,” he says.
“For the board this means that we will set targets for management that we think are ambitious and deliver lasting value to shareholders despite the market environment.
“The achievement of these targets will inevitably mean that variable compensation may be paid even at a time of a poorly performing share price.”
Mullen says total remuneration structure is designed to link financial rewards directly to senior executive contributions, company performance and long term shareholder value creation.
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