CEO's Pay Draws Fire
Rift With Government Grows, Could Damp Interest in Stock Sale
By Barbara Adam and Lyndal McFarland
Thursday, September 28, 2006
CANBERRA, Australia -- The rift between Telstra Corp. and the
government, which owns a majority stake in the company, deepened
yesterday over the bonus paid to Telstra's chief executive just
weeks ahead of a planned 8 billion Australian dollars (US$6
billion) share issue.
Already at odds over November board elections, the further
souring in the relationship between the government and Telstra
is likely to damp retail interest in the huge share offer by the
government, dubbed T3 by investment bankers.
The latest friction involves the A$2.6 million in bonuses paid
to Telstra boss Solomon Trujillo for the fiscal year that ended
June 30, despite the slumping share price.
Australian Treasurer Peter Costello said the Telstra board had a
legal obligation to explain what performance criteria had been
met to win the bonuses, which lifted Mr. Trujillo's total
remuneration for fiscal 2006 to A$8.7 million.
In August, Mr. Trujillo announced a 26% drop in Telstra's
full-year profit to A$3.18 billion as earnings at its fixed-line
business fell and it took provisions for layoffs.
Since the U.S. telecom veteran took the helm in July 2005,
Telstra shares have fallen 27% to close yesterday at A$3.68, up
"Telstra will have to explain to its annual meeting what
performance hurdles they put together, how they would assess
them and how the bonus has actually been paid," Mr. Costello
Prime Minister John Howard also called for the Telstra board to
explain Mr. Trujillo's salary, saying Australians resented
generous executive salaries paid by companies that weren't
performing very well.
"There's an obligation on all company boards to justify these
very large salaries," Mr. Howard told local radio.
Telstra Chairman Donald McGauchie said the basis for the
performance incentives had been publicly available for more than
a month. Mr. McGauchie defended Mr. Trujillo's salary, saying
it was in line with those of executives at similar-size
Telstra and the government are also at odds over board elections
to be held at the company's annual shareholder meeting Nov. 14
in Melbourne. The Telstra board doesn't support the
government's nomination of Geoff Cousins, a former adviser to
Mr. Howard. The government has said it will use its 51.8%
majority holding in the company to elect Mr. Cousins to the
Mr. Howard denied Mr. Cousins would be a government spy on the
"He won't be a prime ministerial plant," he said. "He won't be
there in a representative capacity; I want to make that very
Write to Barbara Adam at
firstname.lastname@example.org and Lyndal McFarland at