Shake-up costs Gattung $2.4m

Theresa Gattung

The Government's decision to regulate Telecom looks likely to cost chief executive Theresa Gattung nearly $2.4 million.

Ms Gattung - who was New Zealand's second highest paid executive last year - is holding share options which were valued at $2.1 million when they were issued but are worthless today because of the enormous drop in Telecom's share price.

Ms Gattung has also lost about $270,000 in the value of her personal share holding as Telecom stock has fallen.

Options - a normal part of the remuneration package provided to many senior executives - give the holder a right to buy shares at a future date at a pre-agreed price.

That price is generally expected to be favourable to the holder. They are designed to provide executives with an incentive to grow the value of the company to the benefit of all shareholders.

More than $3 billion has been wiped off Telecom's market value since the Government's unbundling plans were leaked in May.

Its shares, which have traded as high as $6.05 this year, were worth just $4.04 on Friday.

Ms Gattung's options give her the right to buy shares at between $4.70 and $6.77. Long-term valuations of Telecom by market analysts would suggest that she has no chance of salvaging all of the options and only an outside chance of redeeming any.

Many of them also require her to meet pre-agreed performance targets before they can be redeemed.

The first of the options will expire in September, although those which she has been awarded most recently will remain live until 2011.

The sudden drop in market value has hurt other senior executives at Telecom and the top four, including Ms Gattung, are now out of pocket by more than $6 million.

Telecom spokesman John Goulter described the losses as "a fact of life" for senior executives. Neither Ms Gattung nor her management team would comment on the figures.

A further 590 Telecom staff took part in an equity-linked remuneration scheme and they had also suffered heavy losses, Mr Goulter said.

Ms Gattung's $2.1 million loss is on options collected over several years.

Telecom's annual report shows she was paid a total of $2.9 million last year, which included options deemed to be worth $365,000 - so she will still take home more than $2 million in base salary.

Since the unbundling decision Ms Gattung has faced calls to resign. She has been chief executive since 1999.