Telecom turns away from new acquisitions, defends pay options

By NZPA

Thursday 10th October 2002

New Zealand's largest listed company, Telecom, said today that it was concentrating on paying back debt and improving its performance rather than making new acquisitions.

Chairman Roderick Deane told reporters after Telecom's annual meeting in Wellington that the company was not interested "at this stage" in any prospective telco purchases in the Australasian region.

"We're very much devoted to improving the performance of the business."

He also said the company was not yet considering another writedown in AAPT, Telecom's Australian subsidiary which some observers have consider is still overvalued.

Telecom made an $NZ850 million writedown in AAPT, but the Australian business has finally started making some cash.

At a long-winded but generally genial meeting, the focus was largely on auditing and the way directors and employees were paid.

Shareholders Association chairman Bruce Sheppard led the charge, posting four resolutions including the abolition of share options, and retirement fees for directions.

As a pre-emptive strike, the company outlined in detail the percentage of staff on its five wage bands, and how the level of performance-related pay and share options increased as pay packages rose.

About 87 percent of employees had some element of their remuneration related to company and individual performance, director Patsy Reddy said.

Senior managers were paid bonuses in cash and some were offered long-term incentives, comprising of options and restricted shares, which could not be sold for a specific period.

Telecom was "reasonably conservative" with senior executive base pay rates, which fell within the top 25 percent of the New Zealand market, and the lowest 25 percent of similar companies in Australia.

Nearly 4000 of Telecom's employees were paid a base amount below $40,000. The average base pay of the 14 top-earning staff was $330,000.

On the topic of share options, Dr Deane told Mr Sheppard the company was actively moving away from those in favour of restricted shares.

But Mr Sheppard maintained that share options were actually "disincentives" because they were not worth anything if the company's share price fell well below the optional price.

Telecom was a well-run, cash-rich company, he said.

"We have the cash, if they're doing a good job -- pay them," he suggested.

Mr Sheppard also asked the board to review methods for aligning directors' pay with long-term shareholder value.

But Dr Deane opposed any move away from set fees and towards incentivised pay, saying it was too complicated and that set fees were the norm under Australian Stock Exchange rules.

As a concession, however, all the directors had voluntarily agreed to maintain a minimum number of shares in the company to show solidarity with Telecom's share price.

Telecom's chief executive Theresa Gattung spoke of the company's aims to create platforms for further growth, and to control spending.

She said the voice business still created 80 percent of Telecom's revenue, so the goal was to make sure that was managed "superbly" while looking to grow revenues from non-voice sources such as data and text messages.

While the Shareholders Association praised Telecom for changing auditors to promote good governance and separate their auditors from their accountants, not all shareholders were happy.

Shareholder Oliver Saint said it was hasty to not to give shareholders a say in a decision as important as an auditor's contract .

Shareholders were told that next year's annual meeting would be held in Auckland to give shareholders in other cities a chance to take part.

Telecom said in a statement following today's meeting that shareholders voted against the four resolutions on remuneration put forward by Mr Sheppard.

Other resolutions relating to changes to Telecom's constitution required by the Australian stock exchange were passed.

Also at the meeting, shareholders voted to re-elect Ms Reddy and Michael Tyler to the board. In accordance with the Telecom constitution, they were required to retire by rotation but, being eligible, offered themselves for re-election.

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