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Shareholders May Not Be So Generous With Telstra Corporation Limited's (ASX:TLS) CEO Compensation And Here's Why

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The share price of Telstra Corporation Limited (ASX:TLS) has increased significantly over the past few years. However, the earnings growth has not kept up with the share price momentum, suggesting that some other factors may be driving the price direction. The upcoming AGM on 11 October 2021 may be an opportunity for shareholders to bring up any concerns they may have for the board’s attention. One way that shareholders can influence managerial decisions is through voting on CEO and executive remuneration packages, which studies show could impact company performance. From what we gathered, we think shareholders should be wary of raising CEO compensation until the company shows some marked improvement.

View our latest analysis for Telstra

How Does Total Compensation For Andy Penn Compare With Other Companies In The Industry?

Our data indicates that Telstra Corporation Limited has a market capitalization of AU$46b, and total annual CEO compensation was reported as AU$5.8m for the year to June 2021. We note that's an increase of 15% above last year. While we always look at total compensation first, our analysis shows that the salary component is less, at AU$2.4m.

On comparing similar companies in the industry with market capitalizations above AU$11b, we found that the median total CEO compensation was AU$4.3m. Hence, we can conclude that Andy Penn is remunerated higher than the industry median. What's more, Andy Penn holds AU$50m worth of shares in the company in their own name, indicating that they have a lot of skin in the game.

Component

2021

2020

Proportion (2021)

Salary

AU$2.4m

AU$2.4m

41%

Other

AU$3.4m

AU$2.7m

59%

Total Compensation

AU$5.8m

AU$5.0m

100%

Speaking on an industry level, nearly 45% of total compensation represents salary, while the remainder of 55% is other remuneration. Although there is a difference in how total compensation is set, Telstra more or less reflects the market in terms of setting the salary. It's important to note that a slant towards non-salary compensation suggests that total pay is tied to the company's performance.

ceo-compensation
ceo-compensation

Telstra Corporation Limited's Growth

Over the last three years, Telstra Corporation Limited has shrunk its earnings per share by 20% per year. Its revenue is down 9.1% over the previous year.

The decline in EPS is a bit concerning. This is compounded by the fact revenue is actually down on last year. So given this relatively weak performance, shareholders would probably not want to see high compensation for the CEO. Moving away from current form for a second, it could be important to check this free visual depiction of what analysts expect for the future.

Has Telstra Corporation Limited Been A Good Investment?

Most shareholders would probably be pleased with Telstra Corporation Limited for providing a total return of 40% over three years. This strong performance might mean some shareholders don't mind if the CEO were to be paid more than is normal for a company of its size.

To Conclude...

While the return to shareholders does look promising, it's hard to ignore the lack of earnings growth and this makes us question whether these strong returns will continue. The upcoming AGM will provide shareholders the opportunity to revisit the company’s remuneration policies and evaluate if the board’s judgement and decision-making is aligned with that of the company’s shareholders.

While CEO pay is an important factor to be aware of, there are other areas that investors should be mindful of as well. That's why we did some digging and identified 3 warning signs for Telstra that investors should think about before committing capital to this stock.

Arguably, business quality is much more important than CEO compensation levels. So check out this free list of interesting companies that have HIGH return on equity and low debt.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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