Has Telstra Sol-d out?

This may be one of the few times I find myself in agreement with John Howard -- the recent announcement that Telstra's CEO, Sol Trujillo, will now find his pay packet bloated to some AU$12 million seems a little like overkill.

After the announcement, Prime Minister Howard suggested that Sol might not need all those millions. "I'm not complaining about the salary I get," Howard told Southern Cross Broadcasting. "But I do think the average Australian, who gets paid a lot less than I do ... regards that sort of salary as being absolutely unreasonable."

And not just the average Australian -- the average IT journalist will raise an eyebrow at that sort of remuneration. According to Telstra, Sol's base level of pay has remained at AU$3 million since he joined the company and the rest of the AU$12 million will be made up by shares, if the telco meets performance targets. It's all decided by the markets, a spokesperson added.

Capitalism is all well and good (or rather, inexorable), but I can't be the only one spotting some flaws in this argument.

The idea behind giving Sol a doorstop sized wedge of shares is so that his interests will be aligned with those of the company's shareholders. Forgive my naïveté here but, as CEO of the company -- shares or no shares -- Sol's interests can't help but be aligned with the shareholders.

If he does well in his job, share prices rise and Sol gets to keep the role and the pay that goes with it. The shareholders, too, will be happy as their investment keeps climbing. If Trujillo doesn't perform, the price drops, he suffers and so do the shareholders. There's no disconnect here and certainly not one that needs bridging with eye-popping issues of shares to the boss.

And, for that matter, surely shareholders interests are best served by not paying CEOs disproportionate swathes of cash? If Trujillo's interests were truly aligned with those of the shareholders, he wouldn't take the share issue at all, put the cash back into the business, and content himself with his meagre AU$3 million. It may be a facile argument, but it is no more facile than Telstra's logic on why the boss needs a grossly inflated wage.

When the PM spoke out against Sol's wages, there were suggestions of sour grapes. After all, poor, underpaid John Howard makes 38 times less than Trujillo. And there may be an element of that from Howard -- and from this blog -- but the concern must go deeper than that.

To keep Trujillo on board in the coming years, his remuneration must go up -- placing an even greater burden on Telstra's bottom line. Trujillo, after all, has dodged the question of how long he will stay at the company, telling journalists that his tenure would be defined by accomplishments, not time spans, despite the five-year transformation program the company is ploughing through.

By giving Trujillo a wage that would outstrip some countries GDP, Telstra is making a rod for its own -- and its shareholders' -- back.