Telkom bonuses slammed
Telkom's former CEO and CFO both received higher performance bonuses during the past year, despite the company's lacklustre showing in its results for the 2010 financial year to March.
For the year to March, Telkom reported all but flat revenue growth, with turnover moving 0.7% up, to R37 billion, and reported headline earnings falling from R3 billion last year to R236 million this year, after cash-generative Vodacom was spun out of the group.
In addition, Telkom's operations are not generating cash. The company reported negative cash from operations of R3.3 billion, although it had R3.793 billion in the bank at the end of the year.
Despite the flat revenue, higher operating costs and much lower net profit, the company elected to pay out the two top executives, both of whom have recently quit from the board, higher performance bonuses.
Telkom's former CEO, Rueben September, received a performance bonus of R2.325 million, which was almost R500 000 higher than a year ago, while former CFO Peter Nelson's performance bonus of R1.747 million was R1.3 million higher.
Analysts have questioned the higher bonuses, as the company's performance in the 2010 financial year did not impress the market.
In addition to the higher bonuses, both September and Nelson gained from Telkom's unbundling of Vodacom last year, which resulted in the cellular company listing separately on the JSE.
September walked away from the Vodacom sale with shares worth R1.5 million and a dividend of R555 674, but these amounts did not offset the lower salary he earned during 2010. Vodacom was spun out of Telkom just over a year ago.
Last month, Telkom announced that September would be leaving the company several months earlier than expected, after an earlier announcement that he would leave in November.
His resignation was followed a few days later by that of Nelson, who also benefited from Telkom's decision to unbundle Vodacom.
However, September's salary dropped almost R3 million compared with the 2009 financial year, when he made R12.8 million. Last year, his salary included a basic salary of R3.56 million, a performance bonus of R2.3 million and fringe benefits of R4 million.
Last year, September earned the same basic salary, and his performance bonus was lower at R1.8 million. However, fringe benefits worth R7.4 million bolstered his total package of R12.8 million.
Nelson, who was appointed towards the end of 2008, earned substantially more in 2010 than in the previous financial year. This year he made a total of R7.8 million, which included a basic salary of R2.9 million, a R1.7 million bonus and R3.1 million in fringe benefits.
Last year, however, he earned R975 112 in salary, R448 551 in bonuses and R417 905 in fringe benefits, taking his total salary to R1.8 million. However, he also benefited from Telkom's unbundling of Vodacom, earnings shares worth R1 million and a dividend of R421 439.
Telkom is currently grappling with several issues and urgently needs to implement a turnaround strategy. Acting CEO Jeffrey Hedberg last week revealed a plan to fix the company that was met with the market's approval.
Hedberg said Telkom's cost-cutting initiatives were on track, but the company would also focus on increasing revenue. In addition, Hedberg would work on getting Telkom's mobile operation off the ground and turning its loss-making Nigerian operation, Multi-Links, around.
Chris Gilmour, Absa Investments analyst, says the higher performance bonuses are “hard to swallow”. He says, in his experience, performance bonuses hinge on the financial performance of the company, and not any other reason.
However, says Gilmour, Telkom's performance in the year to March was not worthy of higher bonuses being paid out, instead bonuses should have been reduced. “Whichever way you slice it and dice it, they went backwards.”
Frost & Sullivan ICT industry analyst Spiwe Chireka says, given that the company is not doing well and needs to cut down on costs, “one does question whether any increase in performance bonuses is justifiable”.
Telkom did not immediately respond to a request to clarify why the bonuses were increased.