Telstra chairman John Mullen has defended the telco's decision to hand executives millions in bonuses as shareholders prepare to revolt against the company's executive pay plan.
Fairfax reported yesterday that three major investor advisory groups were preparing to vote against Telstra's Executive Variable Remuneration Plan (EVP) at the next annual general meeting next Tuesday.
The new scheme, which was introduced this year, gives Telstra's board more control over how much executives receive in bonuses each year. In its first year, the board decided executives should receive 33 percent of their maximum bonuses.
Chief executive Andy Penn pocketed $2.14 million in bonuses in 2017-18 for a total pay of $4.5 million, though this was lower than his $5.66 million pay the previous year.
Shareholders have questioned Telstra's decision to pay millions to executives in the midst of the Telstra2022 plan, which will see a net 8000 jobs gone as the telco aims to recoup $3 billion in earnings left in the wake of the NBN.
Mullen wrote to shareholders acknowledging their disappointment, saying the changes were not sufficiently transparent or "resulted in higher payouts than shareholders felt were reasonable".
As a result, Mullen announced that the EVP outcomes would be reduced by 30 percent in order to "balance recognising the achievements of the management team and your experience as shareholders".
"With hindsight, we recognise we perhaps did not provide enough transparency around some of the metrics that we adopted to measure management performance and the reasons as to why these were chosen. For this we apologise," Mullen said.
He added that Telstra's board was "deeply disappointed" with the criticism of the EVP, but supported the new structure, saying it was "the right structure to align management incentives with shareholder interests".
Mullen also provided a detailed breakdown of how the EVP structure works in the effort to win over shareholder approval. If 25 percent of shareholders' votes reject the remuneration scheme, Telstra will receive a "first strike," and if that happens again next year, it could result in a board spill.
Telstra has extensively opened up about the challenges it faces with the rollout of the NBN, increased competition and the loss of a large portion of its legacy revenue. This year Telstra announced the Telstra2022 strategy, which will see a raft of company-wide changes at the telco, including spinning out its infrastructure assets into a new business and $2.5 billion in cost savings.
The company shed $345 million in profits in the 2018 financial year, though revenue was up 3 percent to hit $29 billion.