Shares of Telstra Corporation Ltd [ASX:TLS] have dipped lower, following yesterday’s annual general meeting (AGM).
At time of writing, the telco giant’s shares have fallen 4.98% since this time last week — currently trading at $3.05.
With the recent criticism over executive’s pay, shareholders were asked to vote in the AGM yesterday on the Remuneration Report.
The results of the poll showed that shareholders were not in favour of the Remuneration Report, with 62% of voters against the resolution.
This was well over the 25% threshold.
What does the shareholder protest mean for Telstra?
As a part of Australia’s two-strike law, if Telstra experiences a second strike or disagreement with shareholders next year, the entire board could face re-election.
The two-strike law is designed not only to hold executives accountable for salaries and bonuses, but also to give shareholders a voice in the matter.
Mr John Mullen, Chairman of Telstra, agreed that executive salaries ‘are too high across the board’, but that if this were to change it needs to be adopted by all of corporate Australia rather than just the one company.
Mr Mullen attempted to reason with shareholders saying that CEO Andy Penn’s remuneration had already been cut in half over the past two years. Despite his efforts, shareholders didn’t budge on their stance.
So what happens now?
Well, we can expect to see Telstra come back with a modified executive pay scheme.
Mr Mullen flagged this when he said that,
‘Maybe there is a case for doing away entirely with all these complex schemes and just going back to a fixed salary commensurate with the difficulty of the role.’
But he resisted this idea with a follow up comment: ‘we cannot say to management that there will be zero variable remuneration this year even if you do a great job’.
As a result, Mr Mullen will need to tread a very fine line on pay.
Poor performance this financial year adds to the pressure.
Telstra’s share price has slid 40%, the company has dropped 8% in profits and had a 30% cut to the dividend.
While Telstra’s price to earnings ratio currently stands at 9.8, the company remains significantly leveraged with $27.9 billion in liabilities against $42.9 billion in assets.
For comparison, its competitor Singtel, which owns Optus, is less leveraged with 48.2 billion in assets against 18.6 billion in liabilities.
Perhaps it’s not the best time to be a Telstra shareholder.
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