Thodey is a CEO at the top of his game and has overseen strong total shareholder returns in that period. Nevertheless, he took a 9% pay cut last year — from $8.8 million to $8.2 million — but as we shall see, Telstra also helpfully provides a set of tables that show he actually received $12.8 million, up 33% from last year’s $9.6 million (and it was $4.8 million the year before that).

The reason for Thodey’s apparent pay cut last year was a drop in short-term incentive payments — the annual cash bonus — because Telstra missed its customer advocacy targets, which aren’t disclosed. Thodey told analysts this morning that customer advocacy was Telstra’s No. 1 priority, focused on a key challenge: “How do you provide personalised service at scale?”

Boil that down, and Telstra executives are incentivised to increase the “net promoter score” — a measure that “supports the shift in Telstra’s strategy from the goal of delivering outstanding customer satisfaction to creating customer advocates”. NPS is based on third-party customer surveys — we’ve all answered them, at the end of a call to Telstra — asking customers the likelihood they would recommend Telstra out of a score of 10. Despite today’s upbeat presentation, customers mustn’t be scoring Telstra very highly, because the board decided senior executives should get zero bonus for NPS.

Not that it hurt much, as the following analysis of Thodey’s pay shows, broken into three main components:

Salary and fees: $2,650,000

Fixed remuneration includes superannuation, fees and other benefits like the value of personal home security provided by Telstra. Telstra’s report says Thodey’s fixed remuneration of $2.65 million is around the median for the top 20 ASX-listed companies, and unchanged from last year. That base pay alone is 35 times Australia’s average annual gross salary of $75,600, but is not nearly enough to get the modern CEO out of bed.


Annual bonus cheques go out every September and are paid 75% in cash and 25% in restricted shares, which entitle the holder to dividends and voting but can’t be sold for one or two years, half each way.

The annual bonus can reach a maximum of 150% to 200% of fixed remuneration. It is calculated on five measures: free cash flow; total income; earnings before interest tax depreciation and amortisation (EBITDA); the “net promoter score”; and individual performance objectives, which aren’t disclosed.

For each measure there is a threshold, target and stretch targets: if senior executives don’t meet thresholds, no bonus is paid; if the target is hit, then 50% of the theoretical maximum bonus is paid; only if the stretch targets are hit will the bonus approach the maximum. In the past five years, it hasn’t, ranging from 23% in 2009-10 to 66% in 2012-13. This year it was set at 53.5% of the maximum. In Thodey’s case, that was 106% of his fixed pay, i.e. $2,906,644.

I could not find the relative weighting of the four numeric criteria but the three financial measures were fully met, reflecting Telstra’s strong performance. NPS we discussed above.

Long-term incentive

The long-term incentive is geared to longer-term returns, and this is where the rubber really hits the road for a long-serving chief like Thodey, who has overseen an increase in Telstra’s share price.

The LTI is based on two measures, equally weighted, spread over three years: total shareholder return (TSR, i.e the share price gain plus accumulated dividends) relative to a peer group of 23 global telcos, and free cashflow return on investment, with a target of 15% per annum.

The senior executives got all of their relative LTI in 2013-14, but only 56% of the free cash flow measure. In Thodey’s case, that amounted to $2,580,070, paid in shares that will roll off restriction over time if the three-year targets are progressively achieved.

But the actual pay chart shows how the accounting value in the senior executive remuneration chart, which values share-based payments at the time of issue, actually severely understates the actual value of the remuneration. In Thodey’s case the value in 2013-14 of long-term incentives that became unrestricted was $7,064,406.

Thodey finished 2013-14 with 3,319,003 shares, which would be worth $18.4 million if they could all be sold at today’s price of $5.55. That’s a long way up on the $3.25 share price in 2009-10. Telstra’s 1.4 million shareholders are no doubt grateful for Thodey’s stewardship. When he walks away from Telstra some $50 million richer, that will be seen as the going price for a successful top 20 CEO these days.