KEY POINTS:
Some people will question the gold-plated nature of new Telecom chief executive Paul Reynolds' employment contract. Others will merely be envious. For all, the readymade answer lies in Telecom's parlous circumstance and the strength of Dr Reynolds' curriculum vitae. New Zealand's biggest company needs a chief executive of the highest quality, and the Scotsman's record with British Telecom suggests his salary and perks will be money well spent.
Dr Reynolds will earn a base salary of $1.75 million, plus a $1.75 million annual performance incentive, while also being eligible for a long-term incentive of up to $1.75 million in performance share rights. Querulousness is focused on the fact that the package totals nearly $2 million more than that of his predecessor, Theresa Gattung, and that there are add-ons, such as 10 return business-class flights to Britain annually for him and his family. Most of these perks are, however, fairly standard, and, in any case, are worth a small fraction of his base salary.
An internal promotion, as was the case with Theresa Gattung, would clearly have cost Telecom less. Arguably, the company could also have imported an executive prepared to sacrifice salary for the lifestyle on offer here. That factor, among others, means it cannot be assumed that top-level executives need to be paid the same as in London or New York. But Telecom was not in a position where it could contemplate second-best. It had to seek out knowledge and experience, and be ready to pay for it.
Much of the reason for this is outlined in Telecom's disclosure to the New York Stock Exchange, which is more detailed than that required for a local listing. In this, the company notes it could suffer "substantial adverse effects" on its operational and financial performance under the Government's proposed regulatory changes. There are particular risks attached to local loop unbundling, in terms of both pricing and competition, and in the mobile phone market. Additionally, Telecom must address an alienated public, the product of Theresa Gattung's policies and posturing.
Dr Reynolds' strength lies in the fact that he grappled with these very issues during his career at British Telecom, which culminated in his appointment as chief of BT Wholesale in 2000 and his appointment to the BT board in 2001. Separation of that company into retail, wholesale and network businesses, and evolution of its network were key issues, as was the decision to concentrate on growth, rather than seek to protect its position by any means available.
Many of Telecom's problems spring from its pursuit of the latter course. Its successful thwarting of competition not only starved this country of world-class telecommunications but led, ultimately, to the company being caught on the hop. Dr Reynolds' major task will be to reach agreement with the Government on regulatory issues, so the future can be eyed with certainty. He must also institute a policy of growth that yields telecommunications comparable to that of other developed countries. Winning the public over will involve providing simple, reliable and value-for-money services.
Egalitarian resentment dies hard in this country, especially where business is concerned. Only the most niggardly, however, would deny the tall order handed Dr Reynolds. He will be paid handsomely but it is not one-way traffic. Few have so much of their pay linked to performance. Few would want to tackle so complex a task. If he succeeds, New Zealanders, as well as Telecom, will be much the richer.
