Shareholder groups divided over whether to lodge protest vote over executive pay at Telstra AGM

Shareholder groups are split over whether to pursue a protest vote against Telstra’s remuneration report at next week’s AGM.

Telstra CEO Andrew Penn releases the company'sfirst-half results at their HQ in Melbourne. Aaron Francis/The Australian

Telstra’s remuneration report will be a lightning rod for growing investor discontent at its upcoming annual general meeting, with the jury out on whether the telco’s senior management should see their bonuses cut or not.

While proxy advisers ISS and CGI Glass Lewis have urged shareholders to lodge a protest vote against the report in light of Telstra’s (TLS) poor performance, the Australian Shareholders Association (ASA) has backed the telco’s board.

According to the ASA, the telco’s board has already moved to better align executive remuneration with shareholder returns.

“We believe the Board acted responsibly in applying a cut of 30 per cent to bonuses because of the poor share price performance over the period.”

“While you could argue for a greater cut, this has to be balanced against the impact such an arbitrary move could have on senior executives’ belief in the veracity of the bonus system,” ASA said in its report.

That’s in stark contrast to how ISS and CGI Glass Lewis see the situation, with both proxy advisers saying that the cuts don’t go far enough.

According to ISS, there was still considerable misalignment between executive pay outcomes and the company’s performance.

With Telstra boss Andy Penn on track to earn $4.5 million this year, his hefty pay check has also come under fire from ISS. Mr Penn will receive a fixed salary of $2.38m in 2018, plus $2.14m in bonuses. His total compensation of $4.5m is lower than the $5.6m in 2017.

“The CEO’s fixed remuneration increased in FY18, which is higher than market median, and variable remuneration remained largely unchanged, indicating a deepening misalignment between pay and performance,” ISS said.

“It’s of concern that there seems little variability in the bonus from last year, potentially also indicating misalignment of performance metrics.”

Meanwhile, CGI Glass Lewis also believes Telstra’s remuneration policies remain problematic, despite the telco last year launching a combined incentive scheme, the Executive Variable Remuneration Plan (EVP).

Under the EVP, existing short-term and long-term incentive arrangements of senior management are rolled into one simplified version, with assessment period extended from four to five years.

However, CGI Glass Lewis contends that there are “significant deficiencies in its structure and operation.”

“The overall EVP outcome for FY18 (94 per cent of target and 47 per cent of maximum) does not appear consistent with the company’s overall performance for the year, which was lacklustre,” it said.

Telstra’s books have been severely dented over the last 12 months by the NBN and fiercer mobile competition, prompting it to cut its dividend from 31 cents to 22 cents and completely overhaul its organisational structure through the “Telstra 2022’ strategy.

According to the ASA, the changes afoot at Telstra indicate that the telco’s board is taking decisive action.

“With the share price trend now having been reversed, indicating widespread support for the new Telstra T22 strategy, we don’t believe this is the time to disrupt matters further by encouraging a vote against the Remuneration Report.”

With almost $40bn wiped off Telstra since Mr Penn took over as CEO at the telco, the new strategic direction is designed to arrest the ongoing decline in value and is expected to be a key point of discussion at the AGM next week.

The event is unlikely to deliver any surprises on the numbers front, with Telstra downgrading its income forecasts for Financial 2019 by $300 million last month in the wake of the new NBN corporate plan

However, Telstra is likely to provide an update on how the telco is cutting its workforce, with the Telstra 2022 strategic plan outlining a plan to cut almost 9500 jobs within the next three years.

A Telstra spokesman said on Tuesday that the board was aware of the need to allay investor concerns about the telco’s long-term financial health.

“We are aware a number of proxy adviser firms have recommended against Telstra’s remuneration report and a number of investors have also indicated a vote against it.”

“While we will not know the result until the AGM we are therefore expecting a material vote against the report at the AGM which is naturally of great concern,” the spokesman said.

Telstra’s AGM is scheduled to take place on October 16.

Telstra shares ended the session on Tuesday 0.3 per cent weaker at $3.18.