Telecom details Paul Reynolds’ $10m+ final paypacket

He knew how to negotiate a killer agreement for his company. After threatening to boycott the Ultrafast Broadband (UFB) roll-out and cherry-pick the best fibre business if Telecom was not awarded Auckalnd and most of the roll-out, Paul Reynolds secured $929 million in interest-free taxpayer cash and non-voting shares for (the now spun-off) Chorus with repayments not starting until 2020.

And Telecom's Annual Report, released today, reveals he also knew how to negotiate a killer agreement for himself. Especially in terms of termination and various special payments that boosted his final paypacket above $10 million, with another $2.4 million in the offing (see below).

No-strings sign-on bonus for Moutter
The report also reveals that on top of his previously revealed remuneration of up to $3.7 million ($1.35 million base salary plus incentives), new CEO Simon Moutter has received a one-off share rights grant worth $750,000. The sign-on grant of shares vest in 2013. The report notes, "It will differ from other grants under in that there are no performance criteria attached to it."

Telecom shares [NZX:TEL] closed down 4.4% to $2.42 yesterday.

ABOVE: Telecom 5-year NZX share price performance/market cap. Reynolds started in Sept 07. Chorus was spun off in Nov 11. Click to enlarge.

Mixed record
Shareholders will remember Dr Reynolds with mixed feelings. While he made the best of the UFB (working with a negotiation team headed by Chorus CEO Mark Ratcliffe), and drove out the EPMU, the hurried XT roll-out was a disaster.

And Telecom's share price ($4.47 when he took the helm in September 2007) fell as low as $1.89 by mid-2010 before recovering modestly.

Dr Reynolds' genius, however, was for his performance not to be measured against the company's absolute peformance, but its performance relative to other incumbent phone companies.

Paul's paypacket

For the year ended June 30, Paul Reynolds earned approximately $10.7 million in cash and shares, with another $2.4 million in the offing:

The elements of his remuneration:

$1.91 million: base salary, including outstanding holiday pay

$1.75 million: special severance payment. The annual report explains: “The pre-demerger board and Dr Reynolds agreed that Dr Reynolds’ employment would cease on 30 June 2012 and that he would receive a termination payment of 12 months’ base remuneration on that date.

$1.75 million: short-term incentive payment. Coincidentally, also equal to Dr Reynolds’ base salary. Telecom’s board never detailed the CEO’s long and short term targets, but said they were tied to company performance relative to other telecommunications companies, and to the firm’s share price performance.

$331,000: Sundries. The report says, “Special payments include payment for personal travel between New Zealand and the United Kingdom, gross accommodation payments and obtaining tax advice”

$966,180:  Sale of shares granted under long term incentive scheme.  The report says “The board exercised its discretion to unrestrict 280,258 and 108,878 performance incentive shares granted in FY10 and FY11 respectively under Dr Reynolds’ Performance Incentive Scheme, on 25 May 2012.”  That’s a total of 389,136 shares. On May 25, Telecom’s share price was $2.56, meaning Dr Reynolds would have realised $966,180 from the sale.

$660,831: The sale of 274,204 of 668,790 shares granted under a performance incentive scheme in 2009. The 274,204 shares vested in September 2011. Telecom does not give a specific date, but assuming the worst (that Dr Reynolds sold his shares at Telecom’s September 2011 low of $2.41), the CEO would have realised

$1.24 million: What Dr Reynolds will realise if he sells the remainder of the 668,790 share grant above when it vests in September. The amount shares involved is 512,128 (668,790 minus 274,204 = only 394,586, but this was topped up by “117,542 additional performance rights granted as an adjustment on demerger”). If the shares are sold at today’s price, $2.42, the sale would realise $1.24 million.

$2.1 million: Long term cash bonus. Telecom's report says “This is the maximum of the cash-incentive that Dr Reynolds was eligible to receive under the cash-based long-term incentive scheme granted in September 2010. The pre-Demerger board exercised its discretion to make this payment on Dr Reynolds’ termination, prior to the vesting date of 15 September 2012 as all targets had been achieved in full.”

Additionally, the CEO's termination clauses also includes 881,148 shares granted under performance rights, and 125,594 under "performance entitlements. These shares can be struck in either September this year or September next year. If sold at today's share price, they would be worth a total $2.4 million.

Telecom's report also notes Dr Reynolds termination terms cover "reasonable relocation costs for Dr Reynolds and his family to return to the United Kingdom and accommodation costs for a period of up to two months following his termination.

The outgoing CEO also got free phone calls for two months.

Source: Telecom Annual Report, 2012