Telstra is Australia's largest telco. It is also in the process of being privatised, with the Government's majority shareholding about to be sold.
So when it appointed a new CEO this week there was a lot of interest. Sol Trujillo will become Telstra's CEO on 1 July 2005.
The business media interviews with Trujillo have been probing (for example Alan Kohler's interview on ABC TV's Inside Business).
What has been interesting is the level of Telstra's disclosure in accordance with the ASX Corporate Governance Principles (especially Principle 9 which says " disclosing the remuneration policy is a fundamental requirement for remuneration reporting. The interests of shareholders and the market are best served through a transparent and readily understandable framework for executive compensation and its costs and benefits").
Telstra has released a copy of its contract with Trujillo (in the form of a letter of offer of employment). While the dollars are interesting (AU$3million per annum fixed plus bonus payments depending on meeting unspecified performance targets plus a $1million sign on fee with $1.5million of his first year's bonus paid in advance on sign on) the contract implicitly says some things about the way Telstra may evolve in the future through its termination provisions:
- the contract is not for a fixed term, either party can terminate on 30 days notice;
- but if the board terminates without good reason (in which case there are special provisions) within the first 12 months Trujillo gets 24 months termination pay;
- if Trujillo terminates within the first 3 years, there are special provisions;
- if Trujillo terminates because of a takeover of Telstra there are special provisions.
Rather than focus on the amounts, it is important to look at an employment contract as a possible plan for the future. What this contract says is that the parties are giving themselves a 2-3 year "look see" term during which Trujillo has to finish Telstra's privatisation. After that, Telstra is keeping its options open.
DISCLOSURE: I have a small shareholding in Telstra, bought in Telstra 2 which is currently in the red.
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