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Aug 14, 2009

The Trujillo shambles that haunts Telstra

Former Telstra CEO Sol Trujillo's departure with $9.06 million in his pocket was a final insult to long suffering shareholders. Why was he paid so much to deliver so little?

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Before he was appointed CEO of Telstra, Sol Trujillo told a reporter “once I’ve developed a strategy, I want everyone to fall behind it — you either catch the vision or catch the bus.” For Telstra shareholders, the bus stop may have been a better option.

Trujillo has now bid Australia adios once and for all. According to Telstra’s 2009 Remuneration Report which was released yesterday, the Wyoming native departed with $9.06 million in his pocket, a final insult to long suffering shareholders. Telstra’s financial results yesterday revealed that the telco delivered a 2.7% increase in sales to $25.5 billion while profit rose 10.3% to $4.07 billion.

Telstra’s share price took the profit rise in its stride, dropping five cents to close at $3.56. When Sol Trujillo took charge in July 2005, Telstra’s share price was $5.06. Four years later, and the share price is 30% down, courtesy of a half-complete and overly ambitious transformation plan and a botched national broadband network tender. (Trujillo still receives much praise for the development of Telstra’s 3G Next Generation network, despite the fact that the network was planned prior to Trujillo’s arrival, and implemented by expensive outside consultants and third party contractors).

The Australian has reported this morning that new Telstra boss, David Thodey cited the slowing economy as the key reason behind Telstra’s decision to abandon the ambitious 2010 guidance set by former chief executive Sol Trujillo, who had placed his faith in the company’s $20bn five-year transformation plan.

In 2004, after McGauchie and the Telstra board terminated former CEO, Ziggy Switkowski, it undertook a global search for a new boss. Money was clearly no object, with their search leading them to a former executive of US West (one of the “Baby Bells” which was created after the break-up of AT&T) and Orange. A brief period as CEO of collapsed technology company Graviton was ignored by Telstra. That US West’s share price collapsed from US$69 to around US$1.11 after Trujillo departed also appeared to not be a concern. Nor was US West’s reputation for horrendous customer service, earning it the moniker, “US Worst”.

Despite the baggage, McGauchie and the Telstra board embraced Trujillo, and his associates from US West and Orange, Greg Winn, Phil Burgess and Bill Stewart. (It was revealed yesterday that Winn was paid a $2.2 million bonus by Telstra for overseeing an IT transformation project which is currently $200 million over-budget). The Telstra board handed Trujillo a “sign-on” payment of $1 million, and a sign-on incentive payment of $1.5 million (of which, mysteriously, half of which was paid before Trujillo turned up for work, belying the notion of the payment being based on performance).

In his first full year, Trujillo collected $8.7 million (virtually all in cash), rising to $11.8 million in 2007 before rocking to $13.4 million in 2008 and finally $9.1 in 2009 for nine months service. In total, Trujillo was paid $43 million in less than four years. During that period, Telstra’s share price dropped by approximately 30 percent.

Trujillo’s 2009 remuneration included a “termination payment” of $3 million. This was the Telstra board’s final act of generosity to a CEO who failed to achieve his transformation goals given that Trujillo was not terminated, but rather, resigned to return to the United States and spend more time with family. Under Trujillo’s contract, Telstra had no legal obligation to make any sort of termination payment.

Exactly why Trujillo was paid so much to deliver so little remains a mystery to all except the Telstra Remuneration Committee (headed by Charles Macek, the man who claims to have “written the book on corporate governance”). Trujillo was already a very rich man before arriving in Australia, having been paid a US$72 million golden handshake by US West after leading the company into an ill-fated merger with Qwest (US West retirees did not fare as well, having to take legal action to recover entitlements).

It isn’t only be Telstra shareholders who have rights to be aggrieved at Trujillo’s remuneration. Former CEO, Ziggy Switkowski who presided over a company which made similar profits and employed far more people than Trujillo’s Telstra was paid only $1.65 million in 2000, rising to $6.3 million in 2005 (which included a $2 million termination payment). Trujillo’s local replacement, David Thodey, is receiving fixed remuneration of $2 million, 33% less than Trujillo’s base pay.

Hiring expensive, celebrity CEOs never seems to deliver solid returns for shareholders. It’s a shame no one told the Telstra board in 2005.

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2 comments

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2 thoughts on “The Trujillo shambles that haunts Telstra

  1. meski

    9million is a small price to pay to get rid of him.

  2. RICHARD HOLMES

    When will we learn that hiring second rate Yanks as Ceo’s of our companies gives us nothing but pain,loss of capital appreciation and a lesson of how full of themselves they are.We have had far too many recruited and 90% of them have been failures and walked out with a small fortune.We must be the laughing stock of the of that band of Ceos who never get any higher than a second rate company in the USA. As for NextG , we and the USA are the only countries that use it. All the rest of the world use GSM which appears on my reading to be just as good and do the same things.It now appears that the pre Sol lot decided on NextG. I pray that the new crew in Telstra can break the cycle of arrogance and get down to the business of delivering to customers and shareholders and become an admired company at long last.

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