NBN criticised over high salaries

The question of whether NBN Co executives are paid too much has been raised in the telecommunications industry this week, with some criticising the company’s remuneration structure, while the company itself has highlighted its achievements and the need to pay commercial salaries to attract the right talent.

Yesterday, the Herald Sun published a story that appeared to use information from NBN Co’s 2010 annual report (published in October last year) and its Corporate Plan (published in December last year) to demonstrate that the cost of the company's staff had reached an estimated $132 million per year, with at least 34 NBN Co staff on salaries of between $300,000 and $400,000 a year. NBN Co is strongly hiring at the moment as it bulks up its workforce and the NBN roll-out picks up speed.

In sustained attacks yesterday, Shadow Communications Minister Malcolm Turnbull opened fire at the company on the issue, describing its staff as “well paid”, and Communications Minister Stephen Conroy’s approach to spending on the network as “reckless”.

“This is a start-up business, but unlike every other start-up business, there are no financial constraints at all,” the newspaper quoted Turnbull as saying. “I have heard so many stories in the industry of people being lured from [other] employers with pay rises of 50 to 100 per cent.”

The annual report shows that for the 2010 financial year, NBN Co had four executives on salaries of $700,000 or above, and five more above $400,000. NBN Co chief executive Mike Quigley is personally paid more than $1.8 million a year, but donated his first year’s salary to aid research in brain disease and stroke rehabilitation. Quigley is believed to have significant resources owing from his past history as a senior executive at French networking giant Alcatel-Lucent.

Speaking to radio network 6PR in Perth yesterday, Turnbull said that NBN Co had more employees than it had subscribers on its network, “and they’re very well paid employees”. It was “amazing” that NBN Co had around 1000 employees but only about 560 subscribers on its network, the Liberal MP said. Quigley said at the launch of the Armidale section of the network that, since the start of NBN services at sites in Tasmania in August 2010, 723 customers have ordered services on the NBN, 712 of which had been connected.

“The bottom line,” added Turnbull, “is that this business belongs to a shareholder: Stephen Conroy. Well, it really belongs to the taxpayers, but Conroy’s the minister who is responsible for it and he is absolutely indifferent or reckless about expense.” Turnbull agreed with the 6PR host’s contention that “anyone in business knows that IT is a bottomless pit into which you can tip money if you want to”.

“Of course, absolutely,” he said.

“And that is always going to be the case when you have a shareholder, or a shareholders’ representative, Conroy, who does not care about the expense. If they were fair dinkum, if they were treating this money as they should, as carefully as if it were their own, then they would have done their homework and ensured that they got a cost-effective solution.”

Turnbull himself is believed to be in possession of a substantial fortune, owing primarily to his investments in companies such as OzEmail and WebCentral, as well as his history as the managing director and a partner of investment bank Goldman Sachs Australia. The BRW Rich List, which tracks Australia’s wealthiest individuals, estimated the MP’s fortune at $178 million in 2009.

Speaking in response to the Herald Sun’s report, NBN Co said that it was a start-up organisation that was “growing rapidly”. In a relatively brief time, the organisation pointed out, it had put in place most of the major components upon which the NBN would be based, including:

• arrangements for its operating and business support systems;
• a contract for the provision of the fixed wireless network and the interim satellite service (which begins next month);
• major component supply contracts;
• design and construction undertaken in five First Release Sites, and the connection of the first mainland test services; and
• a major construction agreement with Silcar on the terms of construction for 40 per cent of the construction task nationally over the next two years.

NBN Co’s operating costs would exceed its revenues in the company’s initial years, the company acknowledged, but it forecasted positive operational earnings from the 2018 financial year, with positive net incoming to kick in during 2021. “Revenues in the Corporate Plan are projected at $5.8 billion in the 2021 financial year, and $7.6 billion in the 2025 financial year,” the company said. The government’s $27.5 billion equity investment will be repaid over the life of the project.

In terms of its executive remuneration structure, NBN Co pointed out that it was operating in “a competitive commercial market” for staff, and needed to pay market rates to attract and retain experienced and highly qualified people.

“Independent external advice was followed on remuneration levels, benchmarked against industry standards,” the company said. “The $132 million forecast in the Corporate Plan for staffing includes all staff-related costs — salary, training, travel, recruitment etc.”

The senior executives with upper salaries mentioned in the annual report, NBN Co said, were the first staff hired, as they were the ones responsible for creating the company as a whole, developing its strategic decision and making critical decisions about its future. “The senior team were also responsible for the recruitment of their direct reports and for hiring staff to progressively deeper levels in the organisation,” the company said.

In comparison with executives at other major telcos, NBN Co executives appear to be paid more than some but less than others. iiNet’s 2010 annual report, for example, shows that the company’s highest-paid executive, chief executive Michael Malone, picked up on $668,000 that year, with others such as chief technology officer Greg Bader on $424,000. Other executives were on salaries commonly between $200,000 and $400,000.

However, Telstra’s top executives were routinely paid more than $1 million each in total remuneration during the 2010 financial year, according to the company’s annual report; with the company’s chief executive David Thodey pulling in $3.2 million in total, and several others such as CFO John Stanhope above the $2 million mark.