Telstra stung by protest vote, but hits back at its critics

Shareholders have delivered a major rebuke to Telstra, with 62 per cent voting against its executive remuneration report.

Telstra chairman John Mullen. Pic: Aaron Francis

Telstra has suffered a stinging rebuke from its shareholders, with 62 per cent voting against the telco’s executive remuneration report, lodging the stiffest protest vote against an ASX-listed company in recent years.

But despite the size of the vote, and the admission executive salaries were too high “across the board”, Telstra chairman John Mullen told today’s AGM the telco would not change its remuneration strategy.

Today’s “first strike” protest vote lodged by Telstra shareholders was higher than the 61 per cent posted against embattled financial services AMP in May.

It also comfortably shaded the 49 per cent strike against CBA’s remuneration report in 2016, a 45 per cent vote lodged against insurer QBE, and the 29.8 per cent of proxy votes against TPG Telecom’s remuneration report.

A “first strike” occurs when a company’s remuneration report — which sets out each director’s individual salary and bonus — is the subject of a “no” vote from 25 per cent or more of shareholders at an AGM.

Should there be a “second strike” next year - with another “no” vote by 25 per cent or more shareholders - shareholders will vote to determine whether all the directors need to stand for re-election.

Today’s vote comes not only amid anger over executive pay, but after Telstra shareholders have watched their dividend payouts shrink and the telco’s stock slide over 12 per cent over last 12 months.

Earlier, Mr Mullen said he was disappointed at the prospect of a shareholder protest vote, and hit back at critics of the telco’s performance.

“Firstly, I hear the critics say that Telstra’s performance has been poor this year. I believe that this simply is not true,” Mr Mullen told the annual meeting this morning.

“In the face of the disruption mentioned earlier, Telstra has actually still managed to deliver on its guidance, make a $3.5 billion net profit after tax, and broadly maintain market share in most segments,” he told shareholders in Sydney.

Mr Mullen knew this morning that a substantial number of shareholders had not approved the remuneration report.

“This is deeply, deeply disappointing to my board colleagues and me,” he said.

“I cannot overstate the amount of time we devote to remuneration and how seriously we take the responsibility.

“Some observers out there seem to think that directors sit around like the witches of Macbeth scheming as to how they can manipulate incentive schemes to give improper benefit to already excessive executive salaries,” he said.

Mr Mullen did concede that executive salaries were too high “across the board” but Telstra on its own couldn’t move the dial.

“Changing this takes time and needs to be embraced by all of corporate Australia not just one company or one industry, as the marketplace for talent is international and is industry agnostic.

“We are trying to do our bit in Telstra however, and this can be seen by the fact that David Thodey’s salary was lower than Sol Trujillo’s, Andy Penn’s salary is lower than David Thodey’s, and I expect that Andy’s eventual successor will receive a lower salary again.

“Andy himself has seen his actual remuneration drop by almost 50 per cent over the last two years as the company has been under pressure, so we are not only reducing overall remuneration levels, but our remuneration clearly does flex downwards with shareholder outcomes, even when management has done a good job,” he said.

Telstra CEO Andy Penn. Pic: Aaron Francis

Despite the strident criticism from a number of proxy advisers that led to today’s first strike, Mr Mullen said there would be no changes made to the current remuneration strategy.

“This next year is also going to be a difficult year for Telstra as everyone knows, but we cannot change direction every time a proxy adviser or shareholder finds a new fault with our approach and we cannot say to management that there will be zero variable remuneration this year even if you do a great job,” he said.

“We will listen, we will consult yet again, and we will do everything we can to amend and enhance our remuneration policies where it is demonstrated that we can do better, but we cannot compromise on doing what we think is right for the long term health of the company and for you, our shareholders.”

Earlier, Mr Mullen said Telstra’s (TLS) future was far from “all doom and gloom”.

“The future is exciting. It is full of unknowns, it is full of disruption, but it is also full of enormous opportunity.

“While we are losing many of our old, profitable products and services, demand for our newer core products and services continues to grow rapidly and in the long term the strength of Telstra’s networks, our assets, our balance sheet and our talented people will provide us with a great position of strength to tackle these new challenges head on,” he said.

Mr Mullen’s words were always unlikely to placate Telstra shareholders, who have seen their dividend payouts shrink and the telco’s stock slide over 12 per cent over last 12 months.

While Telstra last year cut executive bonuses by 30 per cent and rolled existing short-term and long-term incentive arrangements of senior management into one simplified version, shareholders say the measures don’t go far enough.

The last time Telstra copped the wrath of institutional shareholders to this extent was in 2007 when the federal government’s Future Fund – a significant stakeholder in Telstra at the time - along with a number of investment advisory bodies, voted against the executive remuneration package.

The latest repudiation from institutional shareholders comes at a time when Telstra is looking to fundamentally overhaul its structure to survive the impact of the National Broadband Network and fiercer mobile competition on its business.

While Telstra has started to implement its “Telstra 2022” strategy, which will see it split its infrastructure and mobile businesses, simplify its plans to consumers and cut almost 9500 jobs over the next three years, the market is yet to be convinced that the measures will help stem the ongoing decline in the telco’s share price.

The telco needs to aggressively cut costs to help manage the earnings pressure and also continue to invest in its networks.

The salary of Telstra boss Andrew Penn is a particular bone of contention for many shareholders given the precipitous decline in the telco’s fortunes since he took the job in May 2015.

Telstra’s shares have dived almost 50 per cent since Mr Penn’s appointment, wiping almost $40 billion off the telco’s books.