AN INVESTOR revolt against a lavish pay package for Telstra's boss, Sol
Trujillo, is fast gathering momentum after two influential corporate
advisory experts urged institutional shareholders to vote against the
company's remuneration report.

CGI Glass Lewis and the Australian Council of Super Investors have joined
Institutional Shareholder Services in recommending their clients vote
against the pay packages for executives at the annual meeting in Sydney on
November 7. The latest criticism raises the likelihood of Telstra's
remuneration report being defeated in principle because many fund managers
tend to follow the advice from the corporate governance experts. "I suspect
there is going to be a significant 'no' vote," a leading fund manager said
yesterday.

CGI's reasons for urging a vote against the report centred on Mr Trujillo's
pay level, which was "considerably higher" than that for his counterparts at
other companies of similar market value.

The adviser noted in a report that Mr Trujillo's short-term incentives of
$5.2 million last financial year were more than double that of his global
industry peers. He pocketed a salary of almost $12 million for the year - a
$3 million increase on his first year in the job.

It will be the second consecutive year that Telstra's board has faced a
backlash over executive pay. Last year its remuneration report would have
been defeated in a non-binding vote had it not been for the support of the
Federal Government, which then controlled 51 per cent of the register. CGI
has demanded a "cogent explanation" from Telstra's board for giving Mr
Trujillo such a large short-term reward when growth in pre-tax earnings and
revenue were at "prima facie low levels". Telstra's pre-tax earnings rose
just 3 per cent in 2006-07.

The adviser criticised Telstra for a duplication of performance hurdles in
the short-term and long-term incentive schemes, which it pointed out "could
result in duplication of awards".

It voiced concern about a lack of explanation from Telstra. CGI said it was
also "extremely concerned" about Telstra's focus on absolute total
shareholder return because it could inappropriately reward an executive as a
consequence of market conditions rather than due to their contribution.

ACSI's executive officer, Phil Spathis, said the council had decided to
advise its members to vote against the pay deal because of concerns such as
the doubling of Mr Trujillo's short-term incentives and him not being
subject to the same hurdles as other executives.

"We are recommending a vote against the remuneration report as a
constructive message to the board to keep encouraging ongoing improvements
in the way it deals with these issues," he said.

A Telstra spokesman said the company's approach was geared to the creation
of long-term value for shareholders, "not to conforming with cookie-cutter
approaches preferred by some proxy advisers".

"CGI would be better advised to get under the bonnet and really work out how
Telstra's scheme delivers long-term value to shareholders," he said.

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