Telstra chair John Mullen’s defence of telco’s five million dollar man doesn’t stack up

Telstra’s chairman appears willing to exclude key metrics when weighing his CEO’s performance as ‘first strike’ hits telco.

Telstra CEO Andy Penn takes a phone call ahead of the company's full year results. Aaron Francis/The Australian

Telstra chair John Mullen today unequivocally backed his chief Andy Penn before a huge vote against the company’s remuneration report.

The company’s stock price (TLS) has fallen by 38 per cent since Penn took over the top job in May 2015 but Mullen told shareholders “it is even more important to incentivise our executives to perform strongly in bad times than in good times and, if so, we must draw a clear distinction between share price performance and management performance.”

“If share price performance is really the only criterion used in measuring management performance then in difficult times like today the payment of any variable compensation at all is going to meet with similar criticism,” Mullen told shareholders ahead of the vote.

One reason why shareholders are angry about the pay issue is because most fund managers wonder how Penn is still in the job.

Mullen disagrees and argues “Telstra’s profits are down 50 per cent because of the NBN and then some with the competition from TPG.”

“If you sack Andy you still have NBN and TPG,” he said.

Mullen, to his credit, is defending the pay scheme which gives Penn $2.4 million in turn-up-to-work pay and $3.2m in short and long term variable pay.

Of this $1.9 million is cash, another 26 per cent is stock he gets unless he is caught with his hands in the till and $1.3 million is long term performance based stock.

Under the old scheme Penn’s short-term cash would have been $1.6m so he is actually doing better under the new scheme.

His pay check has increased each year even while the stock price has collapsed and today the price is down 1.6 per cent at $3.05 even as the rest of the market is up.

Asked what happens next, Mullen says he will talk to shareholders more but he only plans changes around the edges.

Profits were down 8.9 per cent to $3.5bn due to the loss of high margin income from its wholesale division.

Mullen appears to want to exclude earnings and stock prices in measuring company performance.

That works so long as it also applied on the up cycle too but history shows us Telstra management do really well in the up years, so the question is: if we should exclude the NBN impact then surely we should have excluded the fact Telstra had a fixed network monopoly.

Remember also it was under previous bosses like Don McGauchie and Sol Trujillo, when Telstra refused to negotiate, that the NBN was formed.

Maybe the company’s own actions created the mess it now blames. That too seems to be forgotten in the pay debate.

It would seem total shareholder returns and profit performance are not bad indicators of management performance after all.