No pay protest, but director rebuked at Telstra AGM

Telstra has fended off a “second strike” on executive pay, with chair John Mullen defending Andrew Penn’s $5m pay packet.

Telstra chairman John Mullen at Telstra's annual general meeting at the Melbourne Convention and Exhibition Centre on Tuesday. Picture: AAP

Telstra has fended off a “second strike” on executive pay, with the telco’s chair John Mullen launching a spirited defence of chief executive Andrew Penn’s $5m pay packet.

Speaking to shareholders at the Telstra’s annual general meeting on Tuesday, Mr Mullen said big business was under siege from detractors motivated by populist motives.

“I struggle that the business community is singled out, young kids can earn $5m now by playing Fortnite and even influencers — you can earn millions of dollars just by wearing a nice jacket and standing in front of a landmark.

“And yet when a business executive devotes a huge portion of their life … when they get to the top of their profession, it is somehow morally wrong that they get rewarded for it in an international global market,” he added.

According to Mr Mullen, the unwarranted criticism could potentially strip corporate Australia of executive talent.

“Today there is a real risk that the media scrutiny, populist criticism and governance challenges are starting to lead talented executives to look for alternative career paths such as private equity.

“We must never forget that incentive schemes are designed to be an incentive, not a disincentive,” he told shareholders.

The 34 per cent jump to $5m is a significant boost in Mr Penn’s salary, with the CEO last year pocketing $3.7m.

Almost 95 per cent of the votes cast were in favour of the remuneration report on Tuesday, with shareholders largely satisfied with the trajectory of the business.

The strong shareholder support was in stark contrast to last year’s AGM where Telstra’s management suffered a chastening rebuke, with 62 per cent of votes cast against its executive remuneration report.

It was one of the stiffest protest votes lodged against an ASX-listed company in recent years, with shareholders angry about cuts to their dividends and the dire state of Telstra’s share price.

However, a year into the ‘‘Telstra 2022’’ turnaround program, the telco’s share price has risen from $2.62 to $3.57. It has also simplified its plans, cut 8000 jobs and carved out an early lead in the local 5G market.

Telstra’s net profit after tax fell 39.6 per cent in fiscal 2019 to $2.15bn, with revenue down 2.3 per cent to $25.26bn, and Mr Mullen said Telstra’s management deserved credit for turning things around.

“We believe that management has performed excellently this year and we are fortunate that the last 12 months has also seen Telstra’s share price rise materially and outperform the market.”  With a significant portion of Mr Penn’s total remuneration in the form of shares, Mr Mullen said the CEO’s pay adequately mirrored the experience of shareholders.

“It is a natural reaction for shareholders who have seen their shares reduce in value to be disappointed and to question whether executives are feeling the same pain as well.

“The remuneration that Andy has actually received fell by almost 50 per cent over the previous two years because Telstra was under pressure from a number of external factors over which Andy had little control, including the impact of the NBN.

“Even with the rise this year, therefore, the total remuneration he received is still more than 20 per cent below where he was three years ago,” Mr Mullen said.

However, the re-election of former AMP boss and current Telstra director Craig Dunn was a sore spot for many shareholders, with almost 30 per cent of votes cast against him retaining his position.

Echoing the concerns raised by proxy adviser CGI Glass Lewis, which had advised against the re-election of Mr Dunn, a few vocal shareholders said that in light of the banking royal commission Mr Dunn should be held accountable for the practices revealed by the inquiry.

Mr Dunn, who worked in the financial space for almost 25 years, told shareholders his experience in the industry was crucial in fostering optimum corporate governance at Telstra. “I believe I have made a demonstrable contribution to the board and have the career experience to keep doing so.

“The key lessons that stand out for me from (the global financial crisis and the royal commission into financial services) is the importance of good corporate governance and effective board oversight in providing sound decision-making for the benefit of shareholders and customers alike,” he said. “It’s critical that board make-up includes directors with strong financial background.”

Mr Mullen added Mr Dunn was an integral member of Telstra’s board and there no allegations of misconduct had been levelled against him.

“He is an extremely good director and brings huge value to Telstra and if there was ever a suggestion that he has done something improper, he would be the first to step down — we won’t need to ask him.

“But there have been no such suggestion and in the meantime all I can focus on is the contribution he makes as a director to Telstra’s board.”

Having avoided the ignominy of a board spill, Mr Mullen said the telco’s board and remuneration committee had carefully considered the feedback from last year’s AGM.

“We have reduced maximum potential remuneration, increased the equity versus cash ratio, extended vesting for restricted shares, expanded the clawback provisions in our equity terms and a number of other measures,” he said. “We strongly believe these changes strike the right balance.”