Telstra Stares Down Pay Revolt

The Age

Thursday November 8, 2007

Jesse Hogan, telecommunications reporter, Sydney

A SHAREHOLDER revolt over executive pay has not persuaded Telstra's directors to change their contentious policy.

Two-thirds of shareholder votes at Telstra's annual meeting opposed the multimillion-dollar salary packages for chief executive Sol Trujillo and other senior executives, with many investors fuming over the lack of disclosure on lucrative performance bonuses.

The 66.2 per cent protest vote does not force Telstra to renegotiate the contracts because remuneration report votes are not binding. But it is a significant rebuke for directors - particularly chairman Donald McGauchie and remuneration committee chairman Charles Macek.

Mr McGauchie was "disappointed" with the vote but said the board had acted "fully within our responsibilities".

"This board has collectively spent hundreds of hours reviewing global best practices in remuneration plans and we unanimously believe our plan is fair, reasonable and in the best interests of shareholders," he said.

Opposition from corporate voting advisers ISS Governance Services, CGI Glass Lewis and the Australian Council of Super Investors increased the likelihood of the remuneration report being voted down, but it was the intervention of Telstra's largest shareholder, the Future Fund, that "decided the final outcome", Mr McGauchie said.

Telstra's remuneration report only passed last year because of the Federal Government's 51 per cent stake. This year, with most of those shares sold in the T3 sale, Telstra directors met Future Fund chairman David Murray in the hope he would vote the fund's 16.5 per cent in favour of the report. He did not.

"We are obliged to consider the report as a whole and believe that a critical principle in remuneration is that there is clear alignment between long-term, equity-based executive reward and returns to shareholders," Mr Murray said in a statement. "We believe this principle is not sufficiently evident in the Telstra arrangements."

A significant issue for the corporate voting advisers was Telstra's refusal to disclose the benchmarks that trigger long-term executive bonuses. But Mr McGauchie and Mr Macek said this would benefit rivals.

"Boards can behave in a manner that will earn automatic 'yes' votes from proxy advisers, or they can be prepared to stand before their shareholders and propose a course of action that they believe better meets the needs and interests of those shareholders," Mr McGauchie said.

Telstra directors would "not be swayed by the views expressed by external proxy advisers", he said. But Australian Shareholders Association deputy chairman Stephen Matthews backed the advisers' concerns.

"They were only complaining about a lack of transparency, and when there's a lack of transparency in anything these days to do with investments and companies, there's always the perception that the goalposts might be moved," he said.

"Mr McGauchie is putting a very brave face on it but when it all boils down, it's the second-highest 'against' vote for a remuneration report since the requirement was introduced."

While there were no Telstra directors facing re-election this year, they were collectively given a vote of confidence when a motion to increase their pay pool from $2 million to $3 million passed with 95.3 per cent of votes.

Telstra shares fell 1? to $4.82. The partly paid T3 instalment receipts were also down 1?, to $3.31.

? Read the chairman's statement at theage.com.au/businessday

MALCOLM MAIDEN

The message from shareholders, including 16.5 per cent owner the Future Fund, is simple and chastening. The board has been reprimanded.

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