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Telstra CEO's Pay Draws Fire
Rift With Government Grows, Could Damp Interest in Stock Sale
By Barbara Adam and Lyndal McFarland
Thursday, September 28, 2006

CANBERRA, Australia -- The rift between Telstra Corp. and the government, which owns a majority stake in the company, deepened yesterday over the bonus paid to Telstra's chief executive just weeks ahead of a planned 8 billion Australian dollars (US$6 billion) share issue.

Already at odds over November board elections, the further souring in the relationship between the government and Telstra is likely to damp retail interest in the huge share offer by the government, dubbed T3 by investment bankers.

The latest friction involves the A$2.6 million in bonuses paid to Telstra boss Solomon Trujillo for the fiscal year that ended June 30, despite the slumping share price.

Australian Treasurer Peter Costello said the Telstra board had a legal obligation to explain what performance criteria had been met to win the bonuses, which lifted Mr. Trujillo's total remuneration for fiscal 2006 to A$8.7 million.

In August, Mr. Trujillo announced a 26% drop in Telstra's full-year profit to A$3.18 billion as earnings at its fixed-line business fell and it took provisions for layoffs.

Since the U.S. telecom veteran took the helm in July 2005, Telstra shares have fallen 27% to close yesterday at A$3.68, up seven cents.

"Telstra will have to explain to its annual meeting what performance hurdles they put together, how they would assess them and how the bonus has actually been paid," Mr. Costello said.

Prime Minister John Howard also called for the Telstra board to explain Mr. Trujillo's salary, saying Australians resented generous executive salaries paid by companies that weren't performing very well.

"There's an obligation on all company boards to justify these very large salaries," Mr. Howard told local radio.

Telstra Chairman Donald McGauchie said the basis for the performance incentives had been publicly available for more than a month.  Mr. McGauchie defended Mr. Trujillo's salary, saying it was in line with those of executives at similar-size companies globally.

Telstra and the government are also at odds over board elections to be held at the company's annual shareholder meeting Nov. 14 in Melbourne.  The Telstra board doesn't support the government's nomination of Geoff Cousins, a former adviser to Mr. Howard.  The government has said it will use its 51.8% majority holding in the company to elect Mr. Cousins to the board.

Mr. Howard denied Mr. Cousins would be a government spy on the board.

"He won't be a prime ministerial plant," he said.  "He won't be there in a representative capacity;  I want to make that very clear."

Write to Barbara Adam at barbara.adam@dowjones.com and Lyndal McFarland at lyndal.mcfarland@dowjones.com

http://online.wsj.com/article/SB115937730867775649.html?mod=telecommunications_primary_hs