Telstra 2010 Annual Report Download - page 76

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Telstra Corporation Limited and controlled entities
Remuneration Report
Dear Shareholder,
Telstra is pleased to present its Remuneration Report for fiscal 2010. Telstra and its Remuneration Committee seek
to design remuneration programmes that most effectively attract, retain, and motivate the highest calibre
executive talent in our global marketplace. We strive to align our plans with market best practices, government
guidelines and community expectations. The Committee also makes every effort to ensure executive compensation
is aligned with company performance and shareholder returns.
Telstra did not meet all of its financial objectives in the 2010 fiscal year and as you will observe in the Report, this
had a considerable impact on remuneration levels for our Senior Management team. The effects of not meeting
our targets influence both short term and long term incentive payments, which represent a substantial amount of
our executives’ total remuneration. Short term incentive payments for Senior Executives in this Report averaged
22.7 per cent of their maximum potential – by far the lowest payment level in our recent history. The fiscal 2007
Long Term Incentive plan reached its final testing point on 30 June 2010. Despite having met many of the
performance measures in the plan, all options from the grant have lapsed due to Telstra not meeting the plan’s
overall Total Shareholder Return gateway hurdle.
We were disappointed with our financial performance this year but the Committee is confident that the Company’s
remuneration plans were appropriate and that executive rewards were commensurate with Telstra’s business
performance.
In addition to a challenging economic environment, the 2010 fiscal year also marked a period of significant
regulatory changes and recommendations regarding executive pay. The Committee received regular updates from
external expert advisors on items such as executive termination payments, taxation of employee share schemes,
APRA’s prudential guidelines on remuneration, the Productivity Commission’s report on its inquiry into director and
executive remuneration, and other relevant topics. The Committee worked closely with management and our
external advisors to ensure that our policies and practices were amended to align with any regulatory changes and
to proactively address any areas of potential concern.
Finally, in relation to Long Term Incentives, the fiscal 2010 plan remained relatively consistent with the fiscal 2009
plan. The Committee agreed to continue with Relative Total Shareholder Return (RTSR) based on performance
against a peer group of international telecommunication firms as a performance measure and slightly adjusted the
Return on Investment (ROI) measure to Free Cashflow ROI. As Free Cashflow is a critical driver of shareholder
returns, the Committee deemed Free Cashflow ROI to be a more appropriate measure to drive long-term value.
Other LTI changes you will notice in the Report are that restricted shares are now the sole reward vehicle in the
plan and we now have only one testing point in the plan rather than multiple tests as seen in previous plans.
On behalf of the Board, I invite you to review the full Report and thank you for your interest.
John Mullen
Chairman, Remuneration Committee