Telstra boss Thodey well worth his $27m

Outgoing Telstra (ASX: TLS) chief executive David Thodey may not be prepared to defend his salary, but I'll give it a go.

Thodey, who finished up at the telco yesterday earned $27m in cash and shares in the three years to July 2014, or about $9m a year. That works out at 64 times Telstra's average pay of $140,000*, so you can see why he doesn't want to get into it – particularly since he's known for not being flashy and apparently still drives a Toyota Corolla.

Mind you, I don't see him giving any of it back, and nor should he have to. Thodey inherited a company locked in battle with the government and its shareholders, not to mention its customers, and he's been able to fix up the fences with all three constituencies – most particularly the latter through his strategy of 'customer advocacy'. In the process he has created considerable shareholder wealth.

When he took over on 1 July 2009, Telstra had just chalked up earnings per share (EPS) of 33 cents, but it was already set to fall, as reflected by its share price of $3.39, which put the stock on an earnings multiple of just 10. EPS duly shrank by 21% to 26 cents over the next couple of years, while Thodey was getting his feet under the desk, but they've since recovered and are expected to hit 34 cents this year and 37 cents next.

Meanwhile, Telstra's share price soared to $6.23 on the day of Thodey's departure, almost doubling the company's market value from $42bn to $77bn. That figure has been boosted by lower long-term interest rates, but there's no doubt that Thodey has left Telstra in far better shape than it was when he took over – to the tune of tens of billions of dollars. He's been a crucial part of the rehabilitation, and well worth the $27m.

If that's unfair, then that's because the capitalist system is unfair – but we're yet to devise a more efficient way for economies to allocate capital.

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* I've estimated this figure by sharing the company's $4.5bn of labour costs across its 32,000 employees, although the figure might be swelled by contractor expenses.