Telecom details share bonus scheme for bosses

Simon Moutter
Mark Verbiest
Telecom 12-month price history (NZX.com)

Telecom Corp [NZX: TEL], New Zealand's largest telecommunications company, will offer one-off performance equity grants to chief executive Simon Moutter and other senior managers over the next three years to incentivise them to boost profits.

Telecom, which carved out its regulated network operator unit Chorus at the end of 2011, is seeking to bolster earnings by focusing on areas of growth such as digital, data and mobility, and away from its declining legacy fixed-line business. Telecom didn't achieve its short-term financial objectives for the business in its 2013 financial year, so staff only received low short-term bonuses, the company said today.

"There is still a lot more hard work to come to bridge the gap between the declining parts of the business and the growth potential from new businesses we are investing in," chairman Mark Verbiest told shareholders at the company's annual meeting in Auckland.

"We have been reworking the company's remuneration approach to do more to incentivise the sort of performance that will be needed to deliver truly superior shareholder returns with a three-year timeframe," he said.

The company's board decided yesterday to offer equity grants to the senior managers subject to certain shareholder returns being met, Verbiest said.

The hurdles will work on a sliding scale from 40 percent vesting at a total shareholder return of 1.5 times the cost of equity, to 100 percent vesting at a total shareholder return of 2 times the cost of equity. For full vesting to occur, Telecom shareholders would need to have received total shareholder returns over the three year period of greater than 20 percent, compounded annually.

"If these challenging performance hurdles are to be achieved, most particularly, shareholders will have benefited - big time," Verbiest said.

The current financial year will not be any easier than last year as the company faces intense competition and an evolving market, Verbiest said. Still, the company is holding market share and the turnaround programme to enable higher performance within the business is gathering pace, he said.

Verbiest affirmed guidance the company expects an unchanged full-year dividend payment of 16 cents per share in the 2014 financial year.

Shares in Telecom advanced 0.2 percent to $2.29. The stock is rated a 'hold' according to the consensus of 10 analysts polled by Reuters.

(BusinessDesk)

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7 Comments & Questions

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Explain to me why staff received bonuses, when in their own words "Telecom didn't achieve its short-term financial objectives for the business in its 2013 financial year, so staff only received low short-term bonuses, the company said today".

Nothing wrong with short term performance incentives, as long as it is not at the expense of the companys long term profits. Executives should be required to hold the equivalent shares for 5 years after their bonus period, so they make the right decisions for the company rather than themselves.

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most staff don't have fully direct impact on financial performance, so only part of their bonus is based on Cash flow. Other things, like customer satisfaction, or market share also impact the bonus.

Telecom did achieve on those metrics, so some bonus was paid out.

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No. Short term incentives, in the main we're NOT paid out due to short term objectives not being met. Simon Moutter quoting tough times in the industry affecting Telecoms plans (what makes Telecom different to other providers?), does not equate to bonuses for senior execs. Go figure.

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There is an executive game long known, where in the short term new management action a new company policy (e.g. cost cutting to inappropriate market or questionable practices) that will not have its downstream impact for a few years but increase profits in the short term - but not before being given short term performance remuneration deals. Then they exit the company after 2-3 yrs. appearing to have turned the company around, but having left (with PI insurance arrangements in place) have little to no responsibility for the train wreck to come, having pocketed a few million on the way. Its a formula that some use repeatedly as they move around the market. e.g. install new IT to computerise the internal and sales/customer system to cut wage costs, amortise the cost over many years, and then install inappropriate undisclosed reporting and accounting practices using the new IT controls to create a façade of reduced liability or improved performance. e.g. sales today on the basis of pay later customer schemes or off-balance sheet liability transfers.

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Telecom needs to be bold.
Risk and reward is good.
Look at the challenge they have - I reckon they will really earn any awards they achieve.
Telecom is not unlike NZ post - it has a whole lot of sunset business.
Growth is hard, but especially hard when you have to replace stuff before you move forward.

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Its called competition Stuart. Most businesses have to reinvest to maintain and/or grow their market share.

Telecom is now no different to alot of other businesses, not having the luxury of a monopoly contract or position.

As long as the gains are sustainable, I buy into increased equity stakes.

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Sea-change in the NZ telco landscape. No longer is the hate of the industry directed at "Telecom"; now it is directed at Chorus and Telecom itself just gets on with things. And there's a very clear and good reason for that.

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