Hanging up on the $30m man
About 100 Telecom staff and "a few external parties" gathered at the company's Auckland offices on Tuesday evening to see off former Telecom chief executive Paul Reynolds, who officially left the company yesterday.
One said it was a low-key but convivial affair, with speeches (and no bagpipes).
Reynolds is understood to have put the media shutters down on his departure, after a measured but unflattering piece in industry publication Computerworld in May noted that most of his recruits had not stuck around, concluding "in a year from now it might seem as if Reynolds was never here".
Even close colleagues say they have no idea what the Scotsman intends to do next, but tip he will remain a familiar face while his son completes his undergraduate history degree at Canterbury University.
It has been a somewhat ignominious departure for Reynolds, whose vague but passionate-sounding promises to "put the customer first" and repair the company's relations with the then Labour government were eagerly lapped up when he first set foot on the poisoned soil of the post-Theresa Gattung telecommunications market in 2007.
Patsy Reddy, chairwoman of Telecom's remuneration committee at the time, was the first from the company to meet Reynolds at the offices of a headhunter in London.
Her initial impression was not so much of his height – Reynolds is two metres (6'7") and she is 1.7 metres (5'1") – but how he handled that, she says.
"My first observation was he was really used to dealing with short people because sometimes people double-up to shake-hands, but he was very natural and when I met his wife I understood why, because she is about as tall as me.
"I thought he was a splendid chief executive and the right man for the job at the time, which was a difficult job. It was a personal highlight of my time that we were able to recruit him, which was quite a challenge because he was highly regarded at British Telecom and had never been to New Zealand when we first approached him."
Telecommunications Users Association chief executive Paul Brislen says Reynolds made all the right noises on customer service. "I'd have to give him a solid B+ for customer communication. The first step has been taken."
But while the rhetoric was good, that didn't always translate into action, Brislen says. Outsourcing network work in Auckland to Australian contractor Visionstream – prompting long-running industrial action – did not live up to Telecom's "customer-centric message".
Nor did the infamous XT outages of 2010, nor allowing a dispute over mobile network interference between XT and Vodafone and 2degrees to escalate all the way up to the High Court in 2009, he says.
Reynolds' promise to rebuild relations with the government were turned on their head when National was elected in November 2008 with a mandate to build the ultrafast broadband network, an initiative that belatedly led Telecom to bite the bullet and structurally separate by spinning off network arm Chorus.
A co-worker said Reynolds avoided Wellington when possible and was delighted by chairman Wayne Boyd's move to centralise Telecom's executive team in Auckland. "I don't think there is any way Paul would have taken the job if it meant going to Wellington."
Perhaps as a result, Reynolds was slow to pick up the serious intent behind the ultrafast broadband plan, seemingly oblivious to the cogs that were clicking into place in the corridors of the capital, says an insider who regards Reynolds' overall performance as "mixed".
"I think they held some honest views that the business case and demand for UFB was weak and that the Government wasn't really very interested in listening to that. Telecom was slow to realise how serious the Government was and that they had a choice about whether to engage, or not, and that what the Government wanted was for it to "voluntarily" structurally separate.
"I don't think Paul's leadership through that process was very strong," he says.
"The chair's [Wayne Boyd's] leadership was very strong in that respect. Like the majority of the Telecom executive, Paul struggled to accept what was coming. If I was in his shoes, I would think 'I've relocated my whole life, dislocated myself from an economy in which I had considerable potential and it's all changed again'."
Irritation was evident six months after the election when Reynolds publicly "dissed" the UFB plan as a "starter for 10", a reference to the low-value warm-up questions in television quiz show University Challenge.
But by 2010, Labour's 2006 industry reforms, which Reynolds had initially lauded as a welcome discipline that sharpened Telecom's operations, had begun taking its toll on the company and had morphed, in Reynolds' view, into the world's most arduous regulatory regime.
With Telecom's share of the retail broadband market on its relentless slide from 63 per cent in 2008 to 49 per cent today, fixed-line calling revenues dropping off a cliff, and the company struggling to build momentum in mobile, Telecom was looking for an out.
In May, Reynolds finally uttered the "S" word , publicly acknowledging separation was on the table.
The Government nevertheless put a bomb under Telecom in September 2010 by partnering with Hamilton electricity company Wel Networks to build 18 per cent of the UFB network and Telecom ultimately ended up missing out on 31 per cent of what some had theorised was an almost unloseable deal.
With Telecom now firmly back under the control of Theresa Gattung's proteges, including chief executive-designate Simon Moutter, Reynolds may not have an enduring legacy. But neither does he appear to be carrying any personal scars.
An executive who worked closely with Reynolds through his tenure admires the way he adapted to the script changes, took the knocks and famously fronted up on the XT outages in 2010, when most chief executives would have "run a mile".
Reynolds is "good fun, terrific to work for" and has plenty else going on in his life, the executive says.
"He is interested in music, whisky and the great outdoors and is really close to his family, which to him was always paramount. He has strong values there."
And there is always the accent. "We were much better off with a Scottish accent at the helm during some of the XT disasters than we would have been with an American one," he says.
"If we had had someone like Sol Trujillo [then Telstra boss in Australia] we would have been in a bigger hole."
SALARY, INCENTIVES: THE MILLIONS MULTIPLY
He has been variously labelled the $5 million man and the $7m man, but no-one may know for sure how much Paul Reynolds made from his nearly five-year year stint at Telecom until the company publishes its annual report at the end of the year.
He will have banked just over $18m in salaries, "short term" performance incentives and "special payments", but could have made more than $30m in total, excluding any final "payout".
The figure will depend partly on the size of the performance incentive he earned this year and whether more "long-term" performance rights earned in his early years were paid or lapsed because of poor Telecom performance.
Another big chunk, $6.3m, hinges on whether the board exercised its "discretion" to pay him out any long-term incentives issued during the past three years.
Telecom spokesman Ian Bonnar said full details of those incentives might not be disclosed until the company publishes its 2012 annual report.
Bonnar has, however, confirmed there will be some sort of icing on the cake in the form of a payout, which may be compensation Reynolds negotiated in return for the board seeking his successor last year, before Reynolds had formally resigned or been given notice.
A statement on that is expected imminently. Employment lawyers have speculated the payout could amount to another year's salary, worth $1.75m.
Details of Reynolds' pay leaves plenty of room for cynicism. He was entitled to an annual short-term performance incentive of "up to" $1.75m, but a clause allowed the board to pay him "175 per cent" of that bonus, which it generally did, except in 2010 when the payment was reduced to $900,000 because of XT's woes that year.
"Special payments" ranging between $243,950 and $373,074 – several times most people's salary – were paid each year for accommodation and travel.
Shareholders Association chairman John Hawkins says it believed Reynolds' original contract was overly generous.
"The association favours using local talent wherever possible. We understand at the time Reynolds was brought on board that the board thought the international skills he had would be useful, but we think, with the benefit of hindsight, they paid too much."
Patsy Reddy, chairwoman of Telecom's remuneration committee at the time, says she believes his package was "appropriate for his experience, expertise and the market at the time and was highly performance-oriented".
"In the end, we needed to pay that to get him."
A then-government source says Reynolds was probably almost the only appointment Telecom could have made given his former employer BT's experience with operational separation and the attitude of Labour ministers at the time, or was at least a "very obvious choice", and that might have influenced negotiations. In other words, blame the politicians.
Hawkins says it is hard to judge from the outside how effective Reynolds had been, because no-one can say what the situation would have been like if he hadn't been there.
"But I do know he is highly regarded within the company and we shouldn't lose sight this was the largest company in New Zealand at the time. So you would expect the salary to be at the upper end, nevertheless we think it was pretty over the top."
He is encouraged that Telecom's new board has appointed a Kiwi chief executive with New Zealand experience, Simon Moutter, to replace Reynolds on a possible package of more than $3.7m.
"We think that is quite important given the different scale of businesses in this country versus, say, in Europe."
Hawkins says he isn't sure how much, if any, of Reynolds' long-term incentives would be paid, because of the company's performance.
To the extent that those payments were at the discretion of the board as a result of his departure, "we wouldn't expect incentives to be paid if the returns to shareholders have not merited them", he says.
The Institute of Directors is riding in on the broader pay debate, waving what may be an axe or a wet bus ticket.
Institute chief executive Ralph Chivers says it is about to do some research on executive remuneration, which could lead to advice to its members.
"It is an issue of public concern. It is a perennial issue and we are going to give some thought as to whether some guidance is worthwhile."
The institute is unlikely to provide recommendations on actual pay rates, but on "practices and principles" concerning matters such as the link between pay and performance in the short and long term, he says.
"We are acknowledging there is concern around that issue and we are not alone in that. It is international."
September 27, 2007: Former BT Wholesale boss Paul Reynolds joins Telecom on a maximum package of $7m.
May 30, 2008: Hires former Heineken marketing boss Alan Gourdie as head of Telecom Retail and American Frank Mount as chief transformation officer, replacing Simon Moutter.
October 16, 2008: Telecom commits $574m to its XT mobile network, which is to launch in June, though its shares fall 14c to $2.44.
May 29, 2009: Telecom launches its XT mobile network and Reynolds promises to make it the biggest player in the $2.2b mobile market. Its actual share now stands at 37 per cent, still behind Vodafone.
April 15, 2010: The Dominion Post reveals Telecom is ready to structurally separate. Reynolds publicly uses the "S" word five weeks later.
May 24, 2011: Telecom wins 69 per cent of the contract to build the ultrafast broadband network on condition it spins off Chorus. Council-owned Enable prevails in Christchurch.
September 30: Reynolds tells shareholders in Wellington the company will become "the beast unleashed".
October 26, 2011: Telecom becomes the first incumbent telco in the world to structurally separate, when network arm Chorus is spun off into a new listed company.
- © Fairfax NZ News
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