Gattung heads for $2m

By ADAM GIFFORD

Telecom chief executive Theresa Gattung's earnings could break the $2 million mark next year if a proposal to be put to shareholders next month is passed.

The company's annual meeting in Auckland on October 9 will also be asked to boost directors' pay, resuscitate the New Zealand career of former Bank of New Zealand high flyer Lindsay Pyne and, for a limited time, pay brokerage for shareholders who want to sell or buy small parcels of shares.

In a letter to shareholders setting out the proposals, chairman Dr Roderick Deane said Telecom wanted to link more than half of Gattung's pay to her performance and that of the company.

To that end it would increase her cash remuneration to $1 million and give her a bonus, half in cash and half in shares, with a target value of another $1 million.

Gattung might get more or less than that, depending on whether she met specified performance targets and how Telecom Group rated against a measure of returns known as economic value added (EVA).

Telecom's annual report showed than in the year to June 30, 2002, Gattung earned $1,819,500, including options with a value of about $473,000.

In addition, Gattung will get 500,000 share options this year and a further one million in the next two years.

The options allow Gattung to buy Telecom shares at the average daily price for the 20 days before the options were issued, but only vest three years after issue if conditions are met.

Half the shares will vest if the increase in Telecom's share price over the period beats the estimated cost of capital. For the first year, the cost of capital is set at 11.6 per cent.

The other half require total shareholder return, including price increases and dividends, to exceed the gross return of an index of 31 global telecommunications put together by Morgan Stanley Capital International.

Shareholders Association head Bruce Sheppard said the package was similar to the option-based package the association recommended for directors at the last annual meeting.

He said that while the $1 million base pay seemed high, "the short-term incentives are conceptually fine - we can't complain because we advocated it".

However, he was not as happy with the share option plan.

"I am a great believer in absolute returns.

"If the telco industry drops 30 per cent and Telecom drops only 25 per cent, Theresa still picks up the options," Sheppard said.

Given the state of the international telco market, the index may be coming off a low, meaning Gattung will have to beat a rising number.

Sheppard said the fact the scheme locked Gattung in looked more positive than it might have a year ago.

"She is delivering on the cost-cutting. Now she needs to deliver on revenue, so she has to make [Australian subsidiary] AAPT work and has to make Telecom's new technology platforms cost-effective and sell them to the punters."

Gattung's opposite number in Australia Ziggy Switkowski, CEO of dominant telco Telstra, will earn at least A$2.55 million ($2.87 million) if basic performance targets are met. Details of his new contract, which runs until the end of 2007, were revealed last week.

Australia-based analyst Paul Budde said the indicators Telecom was using to measure Gattung's performance might be already loaded in her favour, given that Telecom still enjoyed a monopoly in most of its business.

"The McSI index measures companies facing far more competition than Telecom," Budde said.

"The conditions seem very soft." "[Telecom] should be rewarding people for innovation - the number of broadband connections, the number of new services, revenue figures, mobile data connections."

The company also intends to increase aggregate directors' fees 58 per cent to $1.5 million, a move that seems mainly designed to bring on board Lindsay Pyne as an additional director.

Pyne won few friends during his tenure as BNZ chief executive between 1989 and 1992, in the main because of his hard-nosed approach to collecting on the huge book of ill-considered loans the bank had written in the wild 1980s.

After shepherding the sale of the BNZ to National Australia Bank, Pyne was Asia Pacific president of Visa International, and is now described as an adviser to the president of Bangkok Bank in Thailand.

Sheppard said Pyne did not appear to have an appropriate background for Telecom.

The 1000-share plan, in which Telecom will pay the brokerage for shareholders who want to sell small parcels or increase their holdings to 1000 shares, is aimed at getting holdings above the NZX minimum size.

The scheme runs from September 22 to October 31.