The AFR’s very detailed Salary Review 2007 was published yesterday and it makes for interesting reading. Sadly, it is again Telstra boss, Sol Trujillo, who captures the eye, even though his total remuneration isn’t in the ballpark of figureheads Rupert Murdoch and Frank Lowy, or the Macquarie and Babcock executives.
Alan Jury, writing Chanticleer for the liftout noted that:
[Telstra Chairman, Donald] McGauchie pointed out that most opposition to the way Telstra remunerated its top executives wasn’t to the sums involved, but to the complexity and lack of transparency with respect to some of the performance hurdles.
While McGauchie may be correct in noting that Telstra’s institutional shareholders were highly aggrieved at the company’s lack of disclosure of performance hurdles, that is not to say that Sol’s actual pay was all that flash either.
The AFR noted that remuneration for CEOs of the top 10 Australian companies was:
Total Shareholder Return (3 years)
3-year Total Remuneration
Chip Goodyear, BHP Billiton
Ralph Norris, CBA
John Stewart, NAB
Sol Trujillo, Telstra
John McFarlane, ANZ
David Morgan, Westpac
Leigh Clifford, Rio Tinto
Frank Lowy, Westfield
Michael Luscombe, Woolworths
Don Voelte, Woodside
What the table indicates is that Telstra was by far the worst performed company out of the top 10 in terms of total shareholder return. The average return for the group was 122% – Telstra has returned a limp 27.5% over three years. However, despite returning around one tenth of an investment in BHP or Woodside, Sol was paid more than all other CEOs (except for Westfield founder, Frank Lowy, who can at least point to a lifetime of wealth creation).
Poor old Don Voelte was paid only $7.8 million (less than a third of what Sol received) despite returning more than 200% for shareholders (assisted no doubt by a rampaging oil price)
No one is suggesting Sol has performed terribly in his role. Rather, Telstra looks to be slowly turning around, with the company announcing on 1 November that earnings would increase by 5-7 per cent (up from 3-5 percent as previously forecast). Further, Sol’s job, in turning around a struggling Telco would be far more challenging than say, being CEO of a member of Australia’s banking cartel, or boss of a mining company in the midst of a commodities boom.
But as Crikey has noted in the past, executive remuneration should be linked to long term shareholder returns – not potential returns. If Sol is able to improve Telstra’s profitability, he should be on Macquarie-style remuneration. However, until real improvement occurs and shareholders see actual returns, a smaller fixed salary, with more limited short-term bonuses would seem more appropriate.
These views seemed to be endorsed by Federal Treasurer, Peter Costello, who noted yesterday that “Telstra directors should think pretty carefully about now about the level of remuneration… if your shareholders don’t like your remuneration policy, as a director, you’d better list to them.”