'Lowest CEO salary': Mullen defends Telstra pay as investors strike

Telstra chairman John Mullen has defended paying his executives millions of dollars in bonuses, after a landslide vote against the payments from disgruntled shareholders who have seen the share price falls and the cherished dividend cut.

There was a 62 per cent vote against the telecommunications company's remuneration report on Tuesday, in the biggest swing against the executives' pay in over a decade (there was a 66 per cent vote against executive pay in 2007, before the strike rules were introduced). If Telstra has a second strike, the entire board faces a vote for re-election.

Telstra chairman John Mullen and CO Andrew Penn at the company's AGM in Sydney.Credit: Nick Moir

Mr Mullen railed against high levels of global executive pay broadly, while defending the remuneration plan and explaining chief executive Andy Penn’s remuneration had been cut by 50 per cent this year.

“It's the lowest salary Telstra has paid a CEO in over eight years,” he said of Mr Penn’s $4.5 million pay packet, “shareholder returns have fallen and so has Andy’s salary".

He ruled out changes to the remuneration scheme this year, saying he hoped additional transparency and discussions with shareholders would help improve the vote in 2019.

"We’ve listed every single measure, what’s threshold, what’s target, what’s maximum, and an explanation of why we chose that metric. Hopefully, that will go some way to assuaging concerns of shareholders who are worried about a lack of transparency," he said.

The backlash from investors comes after two years of share price falls for the embattled telco, a dividend cut in February, and struggles across the broader industry with the rollout of the National Broadband Network (NBN) and intensifying mobile competition.

Telstra's share price peaked at $6.59 in February 2015. On Tuesday, shares fell 0.97 per cent to $3.08.

What you can’t blame management for is a 50 per cent net cut in profit from the NBN.

Telstra chairman John Mullen

Mr Mullen urged shareholders not to lay all the blame on his management team for the drop in the share price, raising the NBN’s impact on Telstra multiple times. He defended what some shareholders called a delayed reaction to the long-term government plan, saying the effect of the rollout had only recently become clear.

The impact on Telstra's earnings (before interest, tax, depreciation and amortisation) is expected to total $3 billion a year after the rollout is complete, with an impact of $1.4 billion to date (in 2018, Telstra's earnings dropped 5.2 per cent to $10.1 billion). The impact on earnings per share is greater, to the tune of 50 per cent, which ultimately affects the dividend paid to shareholders.

A shareholder with a self-managed super fund called on the board to increase the dividend, saying he was "somewhat disappointed that today we are not looking at returns that will give us that [hoped for] modest to comfortable retirement".

Mr Mullen said he shared shareholders’ frustration “would love to pay a higher dividend” but would pay “as much as we think is fiscally responsible”.

He said the NBN Co's wholesale pricing was pushing down margins for providers of fixed line services.

“What you can’t blame management for is a 50 per cent net cut in profit from the NBN,” Mr Mullen said.

To face these headwinds, in June Mr Penn announced a radical shake-up of Telstra, dubbed "Telstra 2022", which included a major restructuring of the executive team, making 8000 staff members redundant and creating a new arm of the company called 'InfraCo' to handle the telco's infrastructure.

Mr Penn told investors the management team had been “pulling every lever available" and while the executives "need to be held to account", he urged for shareholders to be aligned around the challenges faced by telcos.

Mr Mullen said InfraCo would put Telstra in the position of a frontrunner, should the government decide to privatise the NBN Co.

"What we have done is to make it quite clear that we are creating an InfraCo inside Telstra so that when, and if, the government decides to privatise the NBN and they have a problem on their hands doing so, Telstra can potentially provide a solution," he said.