Telstra boss Andy Penn set to avoid pay revolt

Telstra boss Andy Penn is likely to avoid a shareholder revolt over big bonuses paid to executives, despite his pay packet jumping to almost $5 million in the last financial year.

Major proxies Institutional Shareholder Service and CGI Glass Lewis have recommended shareholders vote in favour of Telstra's remuneration report at its annual general meeting. It comes a year after investors handed the telco its "first strike" in the biggest swing against the pay packets in more than a decade, with 62 per cent votes against.

Telstra CEO Andy Penn's pay packet reached almost $5 million last financial year.Credit: Steven Siewert

CGI Glass Lewis recommended shareholders vote against the re-election of board director Craig Dunn, saying in a report that his role as former chief executive of AMP meant he "bears normative responsibility" for the bank's conduct that was uncovered during the Hayne royal commission. No findings of personal misconduct were found against Mr Dunn.

If Telstra has a second strike against its remuneration report on October 15, with more than 25 per cent of votes against, the entire board could face re-election. Sources said shareholder advisory firm Ownership Matters had also recommended a vote in favour of the report, making this scenario highly unlikely.

Telstra has since changed some of the features of its executive pay structure and begun a major turnaround strategy called Telstra 2022, which includes cutting thousands of staff and streamlining its products.

An analysis from ISS head of Australia and New Zealand research Vas Kolesnikoff provided to shareholders says a grant of equity to Mr Penn and the overall remuneration report should both be supported by shareholders.

"Many of the shareholder concerns that led to the large negative vote against the [remuneration report last year] have been addressed in the 2019 financial year or planned to be implemented the 2020 financial year," Mr Kolesnikoff said.

Improvements in disclosure around performance measurements, more weighting on financial measures and longer deferral periods were among the changes listed.

"The board has also taken steps to increase executive and director alignment by increasing the minimum shareholding requirement for the CEO and chairman," he said.

CGI Glass Lewis commended Telstra in its report for making "significant changes" to the variable pay and weightings for 2020, and for recognising the areas of concern.

The report said the proxy advisor was "not convinced" the variable pay plan was the best way to reward Mr Penn and his executives but was prepared to support the report overall after the improvements.

The Australian Shareholders Association, which supported the remuneration report during last year's meeting and is supporting it again, said Telstra had consulted widely with shareholder representatives since the first strike and had made changes.

ISS supported the re-election of Mr Dunn and the ASA also recommended a vote for him saying there was no established link between his decisions and poor performance at AMP but said he would be questioned on the issue at the AGM.