Telstra chairman John Mullen has told the company's shareholders that Australian executives are paid too much and there is an argument for getting rid of complicated executive bonus schemes.

Key points: Telstra faces a "first strike" on remuneration report as investors express their anger over 40pc share price fall and dividend cut

Telstra faces a "first strike" on remuneration report as investors express their anger over 40pc share price fall and dividend cut Chairman John Mullen suggests exec pay should just be aligned with the complexity of the job, not driven by complex bonuses

Chairman John Mullen suggests exec pay should just be aligned with the complexity of the job, not driven by complex bonuses Mr Mullen said generally speaking Australian executives are overpaid

Speaking at Telstra's annual general meeting (AGM) in Sydney, Mr Mullen said, given the complexity of executive remuneration that has built up in recent years, it was perhaps best to just pay fixed salaries, "commensurate with the difficulty of the role".

However, it was not enough to head off a massive protest vote from the company's disgruntled investors, who have witnessed Telstra's share-price more than halve since it post-GFC peak in 2015, while dividends have shrunk and likely to shrink more.

Almost 62 per cent of the shareholder votes were directed against the remuneration report, which outlines the salary and bonuses received by directors and senior executives.

A protest vote of only 25 per cent is needed to record a "first strike" on pay. A second strike next year could lead to a spill of all board positions.

It is only the second time an ASX top 20 company has suffered a "first strike".

CBA was humbled in late 2016 by it shareholders, when more than half voted down the remuneration report and for good measure forced the withdrawal of another motion seeking a generous new bonus package for the then chief executive Ian Narev as details of the "pay-for-no-service" scandal emerged.

Before the vote, Mr Mullen told shareholders Australian executives are paid too much and there is an argument for getting rid of complicated executive bonus schemes.

However, Mr Mullen defended the executive pay deals approved by his board, despite the company's performance over the past financial year, which saw its share price slip 40 per cent.

"We thought that we had got it right," Mr Mullen told shareholders.

"But then, even though we believed that management fairly earned their variable compensation at a level of 47 per cent of maximum, the board was acutely aware of the pain that shareholders experienced in 2018."

The board ultimately settled on paying executives on average one-third of their bonuses.

"If we call a spade a spade here, the bottom line is that it would seem that for many shareholders, if they see the value of their shares diminish, then they consider that management has performed badly and should not receive any of their variable compensation, irrespective of whether management have done a good job that year or not."

NBN to halve Telstra profit

Mr Mullen said, in the board's view, management had done an extremely good job in very difficult circumstances, faced with increased competition and the roll out of the NBN.

"The NBN will have reduced Telstra's net profit after tax by close to a half when fully rolled out. Not a few per cent, half," he said.

"Having been privatised by the Government in 1997, the Government is now effectively renationalising half of the company again."

In its full-year results tabled in August, Telstra again cuts its earnings guidance by around $100 million to a range of $8.7 billion to $9.4 billion citing the impact of a quicker than expected NBN roll-out.

Executive pay too high

Mr Mullen said the reaction from investors and proxy advisors posed the question whether there was still a need for complicated remuneration structures at all.

"Maybe there is a case for doing away entirely with all these complex schemes and just go back to a fixed salary commensurate with the difficulty of the role, with maybe one half in cash and one half in shares locked up for five years.

"No metrics, no adjustments, no exclusions, or adjustments and no complicated tables."

Mr Mullen said an additional problem facing boards was attracting top talent to executive positions at a time society increasingly thinks that all big company executives are paid too much anyway.

"This said, I personally believe that executive salaries are too high across the board, but changing this takes time and needs to be embraced by all of corporate Australia not just one company or one industry, as the marketplace for talent is international and is industry agnostic."

Mr Mullen noted Telstra's current chief executive Andy Penn was paid less than his predecessor David Thodey, who in turn was paid less than his predecessor Sol Trujillo, and he expected Mr Penn's successor to paid less again.

Mr Penn's overall pay has dropped almost 50 per cent over the past two years.

"I am old enough to remember when a CEO just earned a big salary and that was it," Mr Mullen said.

"Then over the years stakeholders felt that compensation had to be variable and depend on performance and so the schemes became more and more complicated.

"No two shareholders seem to agree on what is the best solution, so many do not feel that their interests are being properly protected.

"Executives in turn often get frustrated and just wait to the end of the year to find out whether they will receive any variable compensation or not, which means their compensation is less and less driving behaviour, as was the original intent.

"The end result of all this is that, although no doubt well-intentioned by all concerned, we have ended up with a situation where everybody is unhappy."