Telstra (ASX: TLS) shareholders have voted against what many perceive as excessive executive pay, issuing a first-strike against the renumeration report and raising the prospect of a board spill.

Just under 70 per cent of shareholder votes at today's Annual General Meeting were cast against the report, with only 37 per cent voting in favour. Votes tallied came from proxies and early voters, with a final tally due to be issued to the ASX.

Telstra chairman John Mullen conceded ahead of today's vote that executive salaries are too high "across the board". However, he expressed deep disappointment that a substantial number of shareholders were voting against a remuneration report that cuts bonuses by 30 per cent, in a year where dividends fell by the same margin.

Mullen blamed a broader corporate culture in which executives are generously rewarded in other industries.

Telstra

The shareholder vote caps a difficult FY18 for Telstra

"I personally believe that executive salaries are too high across the board, but 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," he said.
"We are trying to do our bit at Telstra, however."

Mullen said Telstra's two most recent chief executives had received lower salaries than their predecessors, and suggested this was likely to continue when Andy Penn steps down.

"The bottom line is that it would seem that, for many shareholders, if they see the value of their shares diminish, then they consider management has performed badly and should not receive any of their variable compensation," he said.

"The issue here is clearly the outcome, not the scheme, and this means that we can make all the changes we like to the scheme and we will never please everybody."

If Telstra doesn't address widespread unhappiness among shareholders, a second-strike next year – that is more than 25 per cent of shareholders voting against the remuneration report – would trigger a board spill.

Morningstar equity analyst Brian Han is unfazed by the news, maintaining his $4.40 fair value estimate for narrow moat-rated Telstra. At 3:30pm Sydney time, the stock was trading at $3.06.

The vote follows a difficult year for Telstra shareholders, with sentiment the lowest Han has seen since 2010, when the mobile business was spluttering and negotiations around the NBN rollout and compensation were at their most heated.

In its full-year results, profit dropped 8.4 per cent to $3.56 billion. Executives warned that challenging trading conditions were expected to continue across the rest of 2018 and into 2019. Today, Mullen urged shareholders to hold tight.

Since chief executive Andrew Penn took over in May 2015, Telstra's share price has almost halved, and dividends have been cut to 11 cents, from around 15 cents.
Telstra's Mullen said the company would listen to shareholders, but emphasises the importance of stability.

"We cannot change direction every time a proxy advisor or shareholder finds a new fault with our approach," he said. "And we cannot say to management that there will be zero variable remuneration this year even if you do a great job."

As a part of its so-called Telstra2022 strategy, announced in June, the company said it be would axe 8,000 jobs. Unions NSW secretary Mark Morey questioned why executives were pocketing millions in bonuses while workers face unemployment.

"It's about executives taking enormous pay bonuses while they're obviously contracting out the workforce, increasing job insecurity and not investing in a workforce that can deliver to Australian businesses and Australian families," he said.

 

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Emma Rapaport is a reporter with Morningstar Australia, based in Sydney.

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