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Telecom details Paul Reynolds’ $10m+ final paypacket

He knew how to negotiate a killer agreement for his company. After threatening to boycott the Ultrafast Broadband (UFB) roll-out and cherry-pick the best fibre business if Telecom was not awarded Auckalnd and most of the roll-out, Paul Reynolds secured $929 million in interest-free taxpayer cash and non-voting shares for (the now spun-off) Chorus with repayments not starting until 2020.

And Telecom's Annual Report, released today, reveals he also knew how to negotiate a killer agreement for himself. Especially in terms of termination and various special payments that boosted his final paypacket above $10 million, with another $2.4 million in the offing (see below).

No-strings sign-on bonus for Moutter
The report also reveals that on top of his previously revealed remuneration of up to $3.7 million ($1.35 million base salary plus incentives), new CEO Simon Moutter has received a one-off share rights grant worth $750,000. The sign-on grant of shares vest in 2013. The report notes, "It will differ from other grants under in that there are no performance criteria attached to it."

Telecom shares [NZX:TEL] closed down 4.4% to $2.42 yesterday.

ABOVE: Telecom 5-year NZX share price performance/market cap. Reynolds started in Sept 07. Chorus was spun off in Nov 11. Click to enlarge.

Mixed record
Shareholders will remember Dr Reynolds with mixed feelings. While he made the best of the UFB (working with a negotiation team headed by Chorus CEO Mark Ratcliffe), and drove out the EPMU, the hurried XT roll-out was a disaster.

And Telecom's share price ($4.47 when he took the helm in September 2007) fell as low as $1.89 by mid-2010 before recovering modestly.

Dr Reynolds' genius, however, was for his performance not to be measured against the company's absolute peformance, but its performance relative to other incumbent phone companies.


Paul's paypacket

For the year ended June 30, Paul Reynolds earned approximately $10.7 million in cash and shares, with another $2.4 million in the offing:

The elements of his remuneration:

$1.91 million: base salary, including outstanding holiday pay

$1.75 million: special severance payment. The annual report explains: “The pre-demerger board and Dr Reynolds agreed that Dr Reynolds’ employment would cease on 30 June 2012 and that he would receive a termination payment of 12 months’ base remuneration on that date.

$1.75 million: short-term incentive payment. Coincidentally, also equal to Dr Reynolds’ base salary. Telecom’s board never detailed the CEO’s long and short term targets, but said they were tied to company performance relative to other telecommunications companies, and to the firm’s share price performance.

$331,000: Sundries. The report says, “Special payments include payment for personal travel between New Zealand and the United Kingdom, gross accommodation payments and obtaining tax advice”

$966,180:  Sale of shares granted under long term incentive scheme.  The report says “The board exercised its discretion to unrestrict 280,258 and 108,878 performance incentive shares granted in FY10 and FY11 respectively under Dr Reynolds’ Performance Incentive Scheme, on 25 May 2012.”  That’s a total of 389,136 shares. On May 25, Telecom’s share price was $2.56, meaning Dr Reynolds would have realised $966,180 from the sale.

$660,831: The sale of 274,204 of 668,790 shares granted under a performance incentive scheme in 2009. The 274,204 shares vested in September 2011. Telecom does not give a specific date, but assuming the worst (that Dr Reynolds sold his shares at Telecom’s September 2011 low of $2.41), the CEO would have realised

$1.24 million: What Dr Reynolds will realise if he sells the remainder of the 668,790 share grant above when it vests in September. The amount shares involved is 512,128 (668,790 minus 274,204 = only 394,586, but this was topped up by “117,542 additional performance rights granted as an adjustment on demerger”). If the shares are sold at today’s price, $2.42, the sale would realise $1.24 million.

$2.1 million: Long term cash bonus. Telecom's report says “This is the maximum of the cash-incentive that Dr Reynolds was eligible to receive under the cash-based long-term incentive scheme granted in September 2010. The pre-Demerger board exercised its discretion to make this payment on Dr Reynolds’ termination, prior to the vesting date of 15 September 2012 as all targets had been achieved in full.”

Additionally, the CEO's termination clauses also includes 881,148 shares granted under performance rights, and 125,594 under "performance entitlements. These shares can be struck in either September this year or September next year. If sold at today's share price, they would be worth a total $2.4 million.

Telecom's report also notes Dr Reynolds termination terms cover "reasonable relocation costs for Dr Reynolds and his family to return to the United Kingdom and accommodation costs for a period of up to two months following his termination.

The outgoing CEO also got free phone calls for two months.

Source: Telecom Annual Report, 2012

More by Chris Keall

Comments and questions
35

We are out of our minds as a society if we think its right to pay a guy 10 million when we have record levels of unemployment and poverty.
Come on now New Zealand this is not right.We are paying a guy 200 times the national average.
Once again John Key ,sort this out or we the people of New Zealand will do it for you

I have no issue with a CEO getting a lot of pay if they create a lot of wealth.

The problem here is that Dr Reynolds convinced the board to payout long-term incentives early (perhaps as the price of an orderly transition).

Telecom's share price and performance over the next 12 to 24 months might prove he was worth it, or it might not.

Oh Dr Reynolds aye.Dont try to butter this guy with respect .He is a fraud ,a con man and a thief.We are not happy that this guy feels he's entitled to this sort of money ok and we'll be doing something so it never ever happens again.

We or maybe just you? Sounds like tall poppies to me

Telecom's board set the remunertation terms and kpis. Reynolds met the crieteria to receive what was due to him. End of story. This has got nothing to do with John Key - grow up.

No you grow up and stop being so obedient and sycophantic - we have elected leaders that do nothing about this insane level of rorting - lets get this clear, this person has not not done anything of value for this country that warrants that paypacket...CEO salaries and bonuses are a con - but our elected leader supports it - naturally. Our elected leaders have a role to play in governing our society - allowing the trough-fest to get worse certainly does have something to do with John Key and his mates.

Your commnets are rubbish!!

Another typical brainless comment from the left wing.

You sir are a moron. Telecom is a private company and can set whatever incentives and pay it feels like paying. If idiots like you ran this country we wouldnt have an economy...... John Key has nothing to do with it..... there is a government that supports this kind of thinking and its called communisim.... so move to China if you dont like it here

Telecom was stolen from its owners, the people of NZ, with the stroke of a pen during the great theft that began with the Lange government and that continues to this day. During his tenure Mr Reynold's has taken a $9B company and transformed it into a $4.5B company. For his 4.5 years of apparently destructive management Mr Reynolds has come out $30m richer. Is this fair?

keep taking the pills mate..... clearly you need them....

Yes, it's called Government Capture. The corporations, facilitated by the Treasury and sympathetic politicians, call the shots. Same problem in the US and UK.

Someone please enter the Brogue Rogue for the Guinness Book of Records as the biggest waste of money on an individual anywhere in the world.
It would be the first thing he really won in a competition.The rest was like clubbing baby seals And the result was equally bloody on the value of Telecom post his visitation (sic)...

Why was my last comment marked as the ubiquitous 'Anonymous", pray?

Telecom is a private business so the government has no right to interfere in the autonomous activities of its Board when it negotiates deals with anybody (except by way of the special regulatory powers in the Telecommunications Act).

I'm sure that then NZ government received a substantial proportion of Dr Reynold's salary in income tax. Generally speaking, 200 times the average salary would lead to 200 times the average tax payments. Outlawing such salaries is not a fiscally neutral exercise! Government actions in response to perceived jealousies is often costly. Just remember, when the Labour government regulated in 2006 and decimated the share price, the biggest (NZ) losers were managed funds with investment portfolios linked to the NZX index (such as ACC and the government employees superannuation fund).

You just listen to the people of New Zealand mate.We are not happy with the remuneration some CEOs are getting ok.If we the people of New Zealand don't think it's appropriate that some jerk is getting obscene amounts of money to manage some hopeless mal performing monopoly we'll dammed well let everyone know and if we the majority don't like it we will through the bstd out ok just you watch us.We are appalled at the way corporate New Zealand is run and we will do something about it got it.

Should have kept this one quiet. Maori will be after a cut of his pay now.

What right has the state to tell people what to pay people?
Where the state has undertook this role, we saw little wealth or freedom for anybody.

You don't seem to understand, we the state will be running this country one day and the first thing we'll be doing is getting the money back that Reynolds has sleazed out of Telecom.We will reorganize CEO pay to what we think is appropriate and if these greedy buggers they can p.ss off.

That's deep

Spout racist cliches much?

Dad? The special orange pill, every second day. OK?

This is the numpty CEO who spent absurd amounts of marketing cash on a particularly stupid advert showing him fishing

did you expect him to fish in auckland harbour?

Rather than pay this numpty CEO $10 mil, Telecom could cover my phone bill for the next 7,000 years! Chch City's CE got crucified for a $60,000 pay increase, what's the deal here?

One would expect him to do his job well enough that he wouldnt need to come up with that particular advert at all - filming himself in central otago just showed how far wide of the mark and out of touch he was - but he was still paid absurdly well which emphasises the true stupidity of our so called meritocracy....not to mention the shallow level of competence of our capitains of industry.

Seems to me in a modern cesspool society the things that come to the top are just plain cr*ppy

free phone calls for two months? Phew, that's a relief. Bet he was getting a bit worried he would have to stump up for those.

And Telecom wonders why everybody hates the brand!

he was not employed by "this country" and is not being paid by "this country", rather by Telecom. Are you one of those jealous small-ninded individuals who blame the government when your local supermarket runs out of weetbix too?

We don't care who employed him he's not getting away with it.

Obscene Obscene Obscene
Don't know how he can lie straight in bed at night accepting such money.
What a pushover Telecom was for him.
NZers really are suckers for supporting the company

Angry little man!

Only a "yes man" would support Reynolds remuneration.Thats why you'll always be fourth fifth or sixth in line.Reynolds uses guys like you to keep him where he is you dork.

i don't see they make Telecom shareholder any richer, left pocket to right pocket. it is all kiwi's money ... Dr. my foot.