Telstra’s board has been given an almighty whack by shareholders, with more than 66 percent of them casting a non-binding vote against the company’s poorly disclosed remuneration report.

Leading the charge against the report was the Future Fund, Perpetual Investments, AMP Capital, Queensland Investment Company, Argo Investment and Colonial First State. Shareholders were aggrieved by Telstra failing to adequately link long-term performance and remuneration.

Chairman Donald McGauchie and remuneration chief, Charles Macek, must be extremely embarrassed by the vote, which is the second highest rejection ever (after only biotech company, Novogen in 2005).

However, instead of apologising to shareholders for getting it wrong, Macek went on the attack, criticising advisory experts such as CGI Glass Lewis and Institutional Shareholders Services for recommending shareholders vote against the report. Macek told reporters that:

…we have to recognise that the people who are advising institutions, the proxy groups, have no expertise whatsoever [and] they would not have a single person on their payroll that has any commercial experience in terms of remuneration.”

Perhaps the “commercial experience” Macek was referring to was the four separate (and presumably expensive) remuneration consultants that Telstra hired to work out its executive remuneration. Of course, hiring remuneration consultants is a sure-fire way to increase compensation. As replayed by Warren Buffett, “there are two classes of clients [that remuneration consultants] don’t want to offend – actual and potential.”

Tracy Lee in the AFR commented that:

The last time a major company the size of Telstra received such a stunning knockback on pay policies there were board resignations.

In 2003 British-based pharmaceutical giant, GlaxoSmithKline made UK corporate history as the first company to lose a remuneration motion on a simple majority of 50.7 percent. Two weeks later the head of Glaxo’s remuneration committee resigned and executive pay packets were adjusted.

By contrast, Macek noted that Telstra would not be adjusting CEO Sol Trujillo’s pay because “you can’t renege on a contract.” Given that, it may be worthwhile for companies to include a clause in executive contracts which allow them to be altered in certain circumstances – like say, when the vast majority of the owners of the company reject the contract.

Despite the Telstra “no” vote exceeding 66 percent, there is no indication that any of the directors who devised the remuneration report will plan to resign from their positions, nor will the remuneration be altered in any way.