Telstra chairman John Mullen says Australian executives are paid too much and conceded the telecommunications giant will receive a first strike when the final vote on executive pay is tallied later today.

Taking to Telstra shareholders at the company’s annual general meeting on Tuesday, Mr Mullen said lower executive salaries need to be embraced by corporate Australia.

“I personally believe that executive salaries are too high across the board, but changing this takes time and needs to be embraced by all of corporate Australia not just one company or one industry, as the marketplace for talent is international and is industry agnostic,” Mr Mullen said.

“We are trying to do our bit in Telstra however, and this can be seen by the fact that David Thodey’s salary was lower than Sol Trujillo’s, Andy Penn’s salary is lower than David Thodey’s, and I expect that Andy’s eventual successor will receive a lower salary again.”

David Thodey received a total package worth $12.84 million in 2013-14, while Mr Penn took home $4.5 million, including incentives in 2017-18.

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Mr Mullen said Telstra chief executive Andy Penn has seen his remuneration drop almost 50 per cent over the last two years as the telco faces increased pressures.

“We are not only reducing overall remuneration levels, but our remuneration clearly does flex downwards with shareholder outcomes, even when management has done a good job.”

Not ‘Witches of Macbeth’ 

Mr Mullen said Telstra will get a first strike after proxy advisers, industry super funds and a number of shareholders have signalled they will vote against Telstra’s remuneration report.

“This will give us what is termed a first strike. This is deeply, deeply disappointing to my board colleagues and me. I simply cannot overstate the amount of time we devote to remuneration and how seriously we take the responsibility,” he said.

“Some observers out there seem to think that directors sit around like the Witches of Macbeth scheming as to how they can manipulate incentive schemes to give improper benefit to already excessive executive salaries. Let me tell you that nothing can actually be further from the truth.”

A strike occurs when 25 per cent of votes are cast against the remuneration report. A strike two years in a row paves the way for a vote on the possibility of spilling the board.

“If we call a spade a spade here, the bottom line is that it would seem that for many shareholders, if they see the value of their shares diminish, then they consider that management has performed badly and should not receive any of their variable compensation, irrespective of whether management have done a good job that year or not,” Mr Mullen said. 

“Although often dressed up in other language, therefore, the issue here is clearly the outcome not the scheme, and this means that we can make all the changes we like to the scheme and we will never please everybody. This I believe is over-simplistic and simply.”

Execs need incentives

Mr Mullen said external factors, such as the NBN, are impacting Telstra’s share price performance and he believes things would have been worse if management had not done an excellent job in this environment.

“I would remind shareholders that Telstra’s share price decline over the 2 years to June 2018 was less than our two listed competitors, TPG and Vocus, who experienced similar NBN pressures to us, and Telstra has broadly maintained market share in fixed and mobile despite the competitive environment,” he said. 

“Also, surely it is even more important to incentivise our executives to perform strongly in bad times than in good times and if so, then we must draw a clear distinction between share price performance and management performance.”

If the world is moving to where variable pay is seen as a bonus for share price performance then Telstra must listen to its shareholders.

“What it does mean, however, is then why do we need complicated remuneration structures at all? Maybe there is a case for doing away entirely with all these 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, or adjustments and no complicated tables,” Mr Mullen said. 

“We would save thousands of hours of RemCo 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.”

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