Interview with Neil Mitchell

9.05 am

SUBJECTS: Margaret Whitlam, Telstra, Eddie McGuire

MITCHELL:

Good morning.

TREASURER:

Good morning Neil. 

MITCHELL:

What are you worth?

TREASURER:

I am not in Eddie’s league.

MITCHELL:

Just before we get to that, what do you think about Margaret Whitlam going after Janette Howard, isn’t that extraordinary?

TREASURER:

I don’t think that it is good when political wives intervene against each other, I don’t think there is anything in that and I think the best thing is if you have opinions to keep them to yourself, that would be my advice.

MITCHELL:

But she seems reasonably active around the traps, doesn’t she?

TREASURER:

Who,  Margaret Whitlam?

MITCHELL:

No, Janette Howard.

TREASURER:

Well as I say, I don’t know why Margaret Whitlam has decided to say what she has and my advice to Margaret Whitlam would be if she has opinions, keep them to herself.

MITCHELL:

I did notice you with your wife the other day, I am afraid, disgracefully you were holding hands. 

TREASURER:

I have done it.  But I am coming up to 25 years of marriage so perhaps you are only supposed to stop that after the 26th, Neil. 

MITCHELL:

My wife takes my hand to drag me home, to get me out of the party.

TREASURER:

Generally, she has got your arm around her neck, propping you up, doesn’t she, Neil?

MITCHELL:

Oh, that is a bit hard.  Now the Chief Executive of Telstra, does he deserve a bonus?

TREASURER:

Well, I don’t know the basis on which he has been paid this bonus and the point I make is that under the Corporations Law, a board has to actually report what performance hurdles they have given to a chief executive, how they have measured the executive against those hurdles and they have to explain how the bonus was earned. And I don’t know what performance hurdles they gave Sol Trujillo, obviously they didn’t give him one that was related to share price because, that hasn’t gone up.

MITCHELL:

Have you had a look at his contract?

TREASURER:

No, I don’t know his contract. 

MITCHELL:

It was available publicly. 

TREASURER:

Yes, it is not set by the Government, the contract is set by the Board.  This is an important thing to explain to the public.  Sol Trujillo doesn’t work for the Government, he was not appointed by the Government, the Government did not settle his contract.  Sol Trujillo works for a company called Telstra, the Board of Directors of which recruited him, set his contract and are responsible for his remuneration.  It is not set by me, and the point I am making is that this Board to whom he accounts, under the law has to explain what the performance hurdles were and how he met them.

MITCHELL:

It is a little difficult to see given the performance of the share price, how he can get a $2.6 million bonus, is it not?

TREASURER:

Well that is the point.  You see, once upon a time bonuses for chief executives would be set according to the share price so that if the share price goes up by $X you get a percentage of the increased wealth you have brought to the company.  And then what people realised was that the share price of all companies was going up.  You didn’t have to be a good chief executive to have a rising share price, you just had to be in the market whilst the Australian economy was running well.  And so what then happened is that an astute board said, well we won’t give you a bonus just for having our share price rise according to what is the market norm, we will give you a bonus for outperformance so that if the market norm of the Australian Stock Exchange is, let’s say, a 20 per cent rise, we will ignore the first 20 per cent rise and we will give you a bonus for every percentage point you get over the market average.  Now, it is pretty obvious that Sol Trujillo is not on a bonus for outperforming the market, that is quite obvious here, so it is up to the Board to actually explain what the performance hurdles they were that they set for him and how he has met them.

MITCHELL:

Is he on shaky ground?

TREASURER:

No, Sol Trujillo reports to the Board and the Board obviously has full confidence in him.

MITCHELL:

Do you have full confidence in him?

TREASURER:

Well I have full confidence in the Board and if the Board has full confidence in him, I have full confidence in him.  It is not my role to appoint him, I didn’t appoint him with that contract, this is a matter for the Board.

MITCHELL:

I notice the number of Coalition backbenchers saying he should be sacked, what is you reaction to that?

TREASURER:

Well everybody is entitled to express their view, but it is not really the business of the MP’s whether Sol Trujillo works for Telstra or not, it is the business of the Board.  This is the point I keep on making – an executive reports to the Board, the Board reports to the shareholders.  He doesn’t report to the shareholders, the shareholders didn’t appoint him, they don’t see his contract, they don’t remunerate him, the proper person to supervise Sol Trujillo is the Board.  And this is the other point that I might make on the way through, he works for the Board, he doesn’t set the Board, it is not up to him to decide who is on the Board, that is a matter for the shareholders.  There is a clear line of responsibility here, the shareholders appoint the Board, the Board appoints the Executive.  The Executive reports to the Board, the Board reports to the shareholders. 

MITCHELL:

Why do you want Mr Cousins on the Board?

TREASURER:

Well, personally I think Mr Cousins would make a good director.  I think he is somebody who has worked in the telecommunications industry, I think he is somebody who has got a pretty good business record, I think that Telstra is short of a few directors at the moment and I think he would make a good director. 

MITCHELL:

Would part of his brief be sort of watching what they are doing?

TREASURER:

Well he would have the same brief as all directors.  All directors have to watch what the company does. 

MITCHELL:

Yes, but he is a friend of government, he is a friend of the Prime Minister, surely, I mean that is the reason that is being interpreted, he is in there just to keep an eye on it and that is a reasonable thing to assume, isn’t it given his background?

TREASURER:

I don’t think so, there would be many people on that Board who would be friends of many people in the community.  But once you go on a board and the law says this, your obligation is to the shareholders, not to anybody else, you have got to do what is in the interests of the shareholders.  And somebody who goes onto a board and says, look, you know, I am not really working for the shareholders here, I am working for someone else, they are in breach of their legal duty.

MITCHELL:

I have just been reading, we have got a copy of Sol Trujillo’s contract off the Telstra website, this is a couple of months ago, just reading what his remuneration package framework is according to Telstra, it is a $3 million basic salary but then it says, short-term incentive plan will require significant performance by the company and you personally.  The actual value you receive will depend on your performance and that of the company.  In addition the Board will set gateway targets.  A performance scale exists between the gateway targets and your personal targets.  So you are saying we need to know what those targets…

TREASURER:

(inaudible) what those gateway targets are, how they are measured and how the Board has decided that he met them.  That is what we are entitled to know.  And by the way, I am not just saying this out of mere intrigue or curiosity, this is what the law says. I am making a legal point here that the Board has to disclose this to the annual meeting and shareholders are entitled to know it. 

MITCHELL:

Are you puzzled by how much he has earned?

TREASURER:

Well the only thing I will say is this, that somewhere some performance targets have been set and someone has decided he met them.  Now they weren’t the normal ones you would see in a company where the performance target is an increase in the share price which outperforms the market.

MITCHELL:

So you sound puzzled.

TREASURER:

Well I am just saying that by the time of the annual meeting the Board will explain that and hopefully it will all be clarified.

MITCHELL:

What do you think about Eddie’s $4.7 million?

TREASURER:

Well it is, good luck to Eddie, he has done pretty well.

MITCHELL:

It is a bit hard to pick up $4.7 million and then sack somebody on fifty grand because they are too expensive.

TREASURER:

Well it is not my job to explain Eddie’s mind. I will let Eddie explain that one to you.

MITCHELL:

Thank you very much for speaking to us.