Investors are also seething over the company’s cut to its dividend in February, the first substantial change in the cherished payout since the telco floated on the sharemarket.
Industrial strife is also likely to surface at the AGM, with representatives from the Communications Workers Union asking members with shareholdings to nominate them as proxy. The CWU urged Telstra workers to reject the company’s proposed new wage agreement, arguing it offered a below-inflation pay rise for some and no guarantee of any rise for others.
Recent statements from the union to members have called out executive pay explicitly, noting the executives as “collectively paid 200 times more” than staff. The union is now also marshalling numbers for a rally outside the AGM.
And the spectre of the Hayne royal commission is likely to drift from the banking sector to the Telstra AGM, with proxy advisor CGI Glass Lewis flagging its “concern” regarding independent non-executive director Craig Dunn – who is not up for re-election – because of alleged misconduct at Westpac, where he is also a non-executive director.
“Given his tenure on the Westpac board, including as a member of Westpac’s risk committee, we believe Mr Dunn shares responsibility in relation to any misconduct and conduct falling below community standards and expectations at the bank,” CGI told clients.
“However, we note that Royal Commission is ongoing and that many of the open findings regarding Westpac are in dispute.”
It added that the findings which Westpac has already accepted were not “sufficiently material” to warrant votes against individuals who also were serving on the Westpac board during the time of the misconduct, “who are currently standing for election at other listed-company boards”.
“We will, however, monitor this issue going forward.”
Mr Dunn is also the former chief executive of AMP.
Telstra chairman John Mullen wrote to frustrated shareholders this week defending the payment of multi-million dollar bonuses to his executives, noting the board had already reduced bonuses payable by 30 per cent due to “balance recognising the achievements of the management team and your experience as shareholders”.
In 2018, Penn is expected to take home about $4.5 million, down from $5.6 million in 2017.
Mullen is adamant the performance of the executive team isn’t directly relatable to the woeful performance of the share price. It’s true telcos have faced significant headwinds, among them the National Broadband Network (NBN) and increased competition in mobile.
In this environment, TPG copped its first strike against executive pay in December 2017, after a year of its share price plummeting.
Telstra is one of an increasing number of big listed companies that has collapsed its long and short-term incentive schemes into a single “combined incentive scheme” – a new pay structure that has been met with scepticism some experts and outright hostility from others.
In its report, CGI Glass Lewis said there were “significant deficiencies” in the Telstra scheme’s structure and operation, noting that there had been no cut to the “overall award opportunity” despite the scheme increasing the “likelihood of payout”.
The proxy advisor said the overall pay outcome “did not appear consistent with the company’s overall performance for the year, which was lacklustre in the face of “rapidly reducing” margins stemming from the rollout of the national broadband network”.
ISS executive director Vas Kolesnikoff said some boards still chose to pay bonuses to their executives in “most” circumstances. But Telstra shareholders were unlikely to agree with this approach, “especially if you look at Telstra’s performance over the last two years”.
“The theme in remuneration governance is genuine variability of bonuses to reflect the shareholder experience,” Kolesnikoff says. “If this is poor, no doubt shareholders are viewing the performance of the company equally.”
As an executive with close ties to Telstra who wished to remain unnamed said: “Shareholders will vote against the remuneration report now any time they’re unhappy with the share price … it’s increasingly common, executives are under pressure.”
Telstra is not alone in bracing for a contentious AGM; IOOF on October 28, Myer on November 30 and National Australia Bank, ANZ and Westpac in mid-December are also expected to be eventful; IOOF and the banks due to the open findings from the Hayne royal commission, and Myer due to Solomon Lew’s continued activism.
The Australian Council of Superannuation Investors says the Hayne royal commission will influence investor voting decisions. “ACSI will be looking for evidence that the executives responsible for perpetuating poor conduct have been held to account for their actions,” says its chief executive Louise Davidson.
“Board performance and director accountability will be key factors which investors will consider when making their voting decisions.”
Long term incentives, whether you like them or not, do resemble the shareholder experience.
Dean Paatsch, Ownership Matters
NAB is also set to attract attention due to also adopting a new “combined incentive scheme” pay scheme, along with JB Hi Fi, whose AGM is on October 25.
Shareholders and investors are concerned that the schemes give boards substantial discretion on whether to pay incentives.
Dean Paatsch, from proxy advice firm Ownership Matters, says he is “open minded but skeptical” about the approach. “The track record of many boards who are asking us to trust them suggests they have not been very brave,” he says. “Long term incentives, whether you like them or not, do resemble the shareholder experience.”
ACSI is also “concerned” about the new trend. “Although we welcome attempts to simplify remuneration structures, some of the schemes we have seen have lowered or completely removed performance hurdles,” Ms Davidson says, adding remuneration will remain in the spotlight during the AGM season.
“If pay outcomes are not transparent and don’t reflect performance, ACSI will recommend that our members vote against remuneration reports,” she says.
Gender diversity will also continue to be a focus, especially at the few remaining ASX200 companies without a single female director.
And then there is the string of shareholder resolutions lodged by NGOs Market Forces and the Australasian Centre for Corporate Responsibility – including at Origin Energy on Wednesday next week, Whitehaven Coal on October 25 and Qantas on October 26 – which will draw attention to environmental and social issues including climate risk, traditional owners and asylum seekers.
But back to Telstra.
There are still a few challenges on the radar. Among them is a report from the government into an embarassing Triple Zero outage across the country in May, which telco industry experts expect will be released “imminently”.
While the AGM on Tuesday will be yet-another public spectacle for the telco, there are signs management has taken the concerns of shareholders seriously.
In June, Penn publicly unveiled his radical Telstra turnaround strategy – dubbed Telstra 2022 – which includes chopping $2.5 billion from its bottom line (an extra $1 billion on previous plans), shaking up his executive team and cutting 8000 jobs.
Cost crunching is usually looked upon favourably by shareholders, and the announcement helped hand the telco some of its best trading days in its history as a listed entity.
Telstra enjoyed another boost two months later when rivals Vodafone and TPG Telecom revealed plans to merge, potentially knocking out the threat of a fourth mobile network in Australia. Penn has publicly, and privately, welcomed the merger in the hopes it’ll end a drawn-out period of falling mobile plan prices and rising data inclusions.
This could go some way to improving shareholder sentiment. As Mullen told unimpressed investors on Thursday, executive compensation “may be paid event a time of poorly performing share price” but he believes the targets are “ambitious and deliver lasting value to shareholders despite the market environment”.
Now, Penn needs to prove him right.
Jennifer Duke writes about media and telecommunications.
Ruth Williams investigates corporate governance, crime, financial regulation and whistleblowers.