THE DISTILLERY: Qantas coin

For years commentators have been baffled by the salaries and bonuses commanded by Australia's senior executives and called for some humility. Now some of the kings of corporate Australia are responding and the question is why? Three writers offer their thoughts. Also in this morning's shot from The Distillery, a fresh debate about the Coalition's plans for the NBN has broken out on these very pages at Business Spectator.

Fairfax's Ian Verrender rejoices in the reluctance of senior Australian executives to accept bonuses this reporting season. The latest, of course, is Qantas Airways chief executive Alan Joyce.

"A noble gesture, to be sure. But it immediately begged the question: After a year of turmoil at the airline, culminating in an expected loss of more than $200 million, why would he even imagine he was entitled to one? The Macquarie Dictionary defines bonus as ‘something given or paid over and above what is due'. Corporate Australia, however, views them not as bonuses at all, but as entitlements that should be awarded regardless of performance. Perhaps it is time the entire bonus system be declared a failure and replaced by one where executives simply are paid to do their job and suffer the usual consequences for failure.”

The Australian's John Durie is similarly disdainful at some of the piles of cash that have been handed around, but is also at pains to point out the manipulative fashion in which some of these "pay cuts” are sold.

"The decision is often reported as ‘CEO Takes Pay Cut', when in fact the chief executive will still get his or her base pay plus all the usual perks. It's just the bonuses for good performance that are being held back after a string of poor investment decisions, or just an average year because the economy isn't too flash. Whether it's the chief executive or the board that make the decision to decline the bonus is unknown, but for appearances sake it's normally written up as the chief executive. That's especially the case if the company concerned is in the middle of wages arbitration, as is the case with the big banks.”

The Australian Financial Review's Mike Smith makes the point that executive pay is coming off a high base and only now, years after the peak of the global financial crisis, are more sensible practises creeping in to corporate governance.

"The federal government's two-strike rule cannot take the credit for changing the game, although the legislation has contributed to a focused debate. It is clear that after two decades of rising remuneration packages, short-term cash incentives in particular are out of whack with market performance. Any company that has cut its workforce, downgraded earnings or announced significant writedowns is now on notice as boards wake up to the fact it is better investor and public relations for its senior executives to sacrifice a bonus now, rather than have shareholders vote it down at the next annual general meeting. It is no secret large listed companies closely scrutinise what their peers are doing, so when the chief executives of Qantas, BHP and Rio Tinto do something you can expect others to follow.”

Like the banking debate, executive remuneration has split business commentators into two rather inflexible camps.

From The Distillery's point of view, it's too easy to say Joyce doesn't deserve a bonus simply because Qantas struggling, due in large part to a number of outside forces (as explained in yesterday's edition of The Distillery).

To make things simple, this column suggests that the two things shareholders want from their chief executives are the brains to see value and the courage to secure it.

Joyce grounded an international fleet of aircraft to bring a cancerous industrial dispute to a head. Is he not courageous?

Their counterargument is that bonuses for this kind of leadership could be delivering in the form of long-term share plans. The problem with that is that it then becomes beholden to the actions of the predecessor.

The other big topic that's broken out since our last edition concerns the National Broadband Network (if you've already read both pieces, skip ahead a few paragraphs to the AFR's John McDuling). Specifically, this debate is about what the Coalition should do with the NBN once (sorry, if) it wins the next election (Labor has just received a bump in the latest Newspoll).

Business Spectator's Alan Kohler made an impassioned plea to Communications Minister Malcolm Turnbull yesterday to drop the policy to dump the NBN, which he claims will be connected to about one million homes and businesses by the next election, would be too expensive and time consuming.

Kohler added that such a move would result in a two-tiered internet landscape in Australia and the Coalition should simply concede it will be too far advanced to stop and simply promise to deliver it on time and on budget.

Turnbull hit back in Business Spectator, saying that it would be nowhere near passed one million homes and businesses, adding that negotiations with Telstra would not be too expensive, nor would it result in such a two-tiered system.

The Distillery recommends reading both articles in aforementioned order, but here's the CliffsNotes version.

Turnbull's first point looks compelling. The Member for Wentworth says the NBN will be connected to 54,000 premises by June next year and the NBN fibres will be "passed” 341,000. That's a long way from one million.

But Kohler looks to have the goods when he says Telstra executives will screw the Coalition during any fresh negotiations. How could a Coalition government avoid that and why would Telstra decline the opportunity?

And Turnbull's lets himself down by pointing out that the internet is a "network of networks” and the home connection is limited by the speed of the server you're downloading material from, which is often located overseas.

It's true, but the "network of networks” is improving in speed all the time as servers and surrounding infrastructure are upgraded. For Turnbull's argument to stack up, he needs to paint a compelling picture of the Coalition's NBN plan meeting the growing capacity of the global "network of networks”. He doesn't, or at least he hasn't yet.

However, the communications minister hits a great beat when he says: "And as for saying I should ensure the NBN is delivered ‘on budget' – if only there was a budget! The NBN Co has no budget.”

Complicating the debate further is The Australian Financial Review's John McDuling, who says the NBN will likely be connected to "less than 100,000 households” by the next election. That's a phrase a journalist only uses when the real number is not far beneath the headline number.

"At face value, Turnbull's confidence that his network will be delivered more quickly than Labor's seems reasonable, given his alternative would be, by definition, inferior to the NBN in its current form. But analysts at Goldman Sachs last month provided a sobering analysis of the challenges any incoming Coalition government would face when it comes to altering the NBN. The rollout would actually slow in the short term, Goldman analyst Raymond Tong argued, with legislation amending the structure of the network, renegotiation of deal terms with Telstra and internal disruption at NBN Co (including potential changes to senior management) among the -factors contributing to the delays. Tong predicted the Coalition's NBN rollout would be faster over the longer term, but its less ambitious network would still not be completed until 2020.”

Elsewhere in the business commentator world, The Australian's Richard Gluyas and The Australian Financial Review's Chanticleer columnist Tony Boyd look at the potential fortunes facing Challenger. Gluyas says not enough attention is being given to Challenger's growing funds management skills, while Boyd says the company could secure enormous riches from Australia's retiring baby-boomers or disappoint thanks to regulatory forces.

In other company news, The Australian's Darren Davidson, one of the paper's most talented reporters, suggests that former Seven executive and current Ten Network chief executive James Warburton might be feeling a sense of regret for a lack of patience.

The same newspaper's Barry Fitzgerald warns that the dour signs emanating from Yancoal Australia, the largest pure coal play on the ASX, provide yet more evidence that the federal government's mining tax might raise sweet bugger all from the fossil fuel.

In economic news, Fairfax's Tim Colebatch, who is Victorian-based, says his state is at the centre of everything that isn't. The Australian Financial Review's Robert Guy suggests that investors might have to wait a little longer for stimulatory policy action from Beijing, as the Communist leadership remains wary about overcooking it. Guy points out that the Shanghai Composite index hit its lowest level since March 2009.

And finally, Fairfax's Adele Ferguson picks up on concerns expressed by opposition finance spokesperson Andrew Robb about the state of the industry super funds industry in the wake of agitations between the NSW and Victorian branches of the Electrical Trades Union.