Australia’s executive pay backlash hits Telstra and Transurban

Some of Australia’s largest companies are facing a concerted pushback from shareholders concerned about executive pay.

Amid ongoing concern about stagnant wage growth, the beginning of AGM season and fresh executive pay disclosures have already prompted a renewed focus on what the top end of town is earning, with focus on Telstra and Transurban.

On Thursday, Telstra was forced to apologise to shareholders for a lack of clarity about how it calculates executive bonuses and acknowledged some investors still feel they are too high despite a 30% cut.

With shareholders set to vote on the remuneration plan at next week’s annual general meeting, chairman John Mullen has written to shareholders defending multi-million-dollar packages as essential in attracting talented managers, while acknowledging Telstra had erred.

The telecommunications giant had cut bonuses following a year in which full-year dividends fell almost 30% and profit dropped 8.4%.

“Some shareholders still feel that our remuneration outcomes were either not sufficiently transparent or resulted in higher payouts than shareholders felt were reasonable,” Mullen said in a letter published on the ASX on Thursday.

At the same time, proxy shareholders have raised concerns about the “oversized” pay of toll road company Transurban’s chief executive, Scott Charlton, ahead of the company’s AGM on Thursday.

The Australian Financial Review reported that proxy groups ISS and CGI Glass Lewis, along with the Australian Shareholders Association, had taken issue with Charlton’s $7m annual pay packet.

The toll road operator controls 15 out of the 19 toll road concessions in Australia, including six in south-east Queensland and seven in New South Wales.

Its assets include Sydney’s NorthConnex, Melbourne’s West Gate tunnel, and the Citylink Tullamarine widening in Melbourne.

In August it was given the green light to pay $9.2bn for a controlling share in Sydney’s WestConnex despite the Australian Competition and Consumer Commission earlier raising competition concerns.

It means that on motorways across Australia the sound of your e-tag beeping means a few more cents for the Transurban boss.

Charlton’s fixed salary remained flat in the financial year, at $2.2m, but he received a $1.5m cash bonus and securities worth $1.2m as part of his short-term incentive plan. He also received $2m in long-term equity awards, the AFR reported.

His total pay packet is more than triple the pay of other top executives at the company, and both groups have raised concerns about the transparency of the firm’s bonus regime.

The groups would not vote to oppose Charlton’s pay at today’s AGM, but had taken issue with the increasing gap between the CEO and the rest of Transurban’s executive team.

In a paper in the lead-up to the AGM, ISS wrote that despite the company’s positive financial performance – Transurban’s annual net profit more than doubled in 2017-18 to $468m – the CEO’s pay was “excessive and significantly increasing”.

A perceived lack of transparency around the company’s bonus disclosure was “a material shareholder concern for transparency”.

Companies such as ISS and CGI use proxy votes from other shareholders in order to push for corporate governance reforms. The ASA is a not-for-profit individual investor association that advocates for shareholder rights.

CGI said the difference between the CEO’s pay and that of other executives was an issue of corporate governance.

“Since oversized CEO pay is usually the size of an all-powerful CEO, internal pay equity can also serve as a check on a CEO’s authority, increasing the involvement of other executives in the management of the company and preparing them for future transition into the role of the CEO,” CGI said.

“Accordingly, a high level of executive pay inequity, as in this case, may indicate long-term problems with the company’s remuneration practices and, more broadly, its board-level management and oversight.”

In a statement the company said its remuneration policies were reviewed annually, and it considered “security holder and other stakeholder feedback, market expectations and regulatory developments”.

“As acknowledged by major proxy advisors in the lead-up to this year’s AGM, Transurban’s remuneration practices closely align executive pay to the interests of our security holders,” a spokesperson said.

CEO pay has come under increased scrutiny as wages for most workers go through a period of sustained stagnation.

In July a survey by the Australian Council of Superannuation Investors found median pay for the CEOs of ASX 100 companies rose to $4.36m in the 2017 financial year.

In August the scandal-plagued wealth management company AMP faced a backlash after handing its new chief executive an highly incentivised remuneration package that could earn him $8.3m in his first year in the job.

The deal meant Francesco De Ferrari could earn a further $17.7m in cash, shares and options over the next few years if he meets certain performance hurdles, including turning around the company’s languishing share price following the scandals that have emerged from the banking royal commission.