Turn back the nodes - an NBN conundrum

We would not recognise a bit of fibre-to-the-node if it poked us in the neck but the latest twist in the saga of the national broadband network has been an eye-catcher.

We would not recognise a bit of fibre-to-the-node if it poked us in the neck but the latest twist in the saga of the national broadband network has been an eye-catcher.

The board of Rio Tinto blew up $40 billion and it is cabernet as usual, but the NBN is apparently still on track to cost $37 billion and the entire board got axed this week.

Incoming governments are far more demanding shareholders than those big lazy institutions.

The NBN story has had us stumped for years. Every time you read something about it, NBN Co is either screwing its contractors or racking up humungous cost blowouts. How it can do both at the same time is unfathomable.

On Monday, the board of NBN Co was rolled. The new communications supremo, Malcolm Turnbull, had asked directors for their resignations the week before. All but one accepted.

On Wednesday, NBN Co's corporate plans leaked to the media. They confirmed the network was still going to cost $37.4 billion to build, up to 2021. The government outlay is still $30.4 billion, and operating costs remain ... wait for it ... unchanged at $26.4 billion over the next eight years.

The bad news is the roll-out has passed far fewer homes than forecast, and the good news is the cost of running fibre from a "fibre access node" to the inside of a house has fallen sharply. That is the pesky thing about budgets: unlike historical data, they tend to change. Although, with this NBN, do not be surprised if history changes too, and soon.

Turnbull is sceptical about NBN Co's numbers. And it is no wonder as he must have read 10,000 times in the press how unreliable they are. So now there is a strategic review.

If it turns out that there are no massive cost overruns, and the NBN is more or less on track, it could be a case of "turn back the nodes". Perhaps they can take a leaf out of Scott Morrison's book and bring down the cone of silence so nobody knows how many node cabinets are coming in, or if fibre-to-the-home is back on again.

Executive pay season is upon us. The public is now inured to grotesquely large and largely riskless "rem" deals. The final tranche of pay for departing BHP chief Marius Kloppers was revealed this week, to little fanfare.

Kloppers was allotted about $US16 million ($17 million) for 2013, which, toting up his five years at the helm, gets him to roughly $US70 million. He will enjoy some share takeaways with that too as he officially leaves the building next week but the company was transmitting its message of prudence, that there would be "no farewell payment".

Is it all worth it? This is a big company, a big job, why not pay big? BHP has also outperformed its peers and relativity is the main benchmark for its executive incentives.

We know however from most of the studies that there is zero correlation between executive pay and performance. Kloppers would have taken the job anyway, even if he knew the board would have only paid him $US35 million.

The share price was about $44 in October 2007 when Kloppers succeeded Chip Goodyear in Australia's premier corporate gig. Now it is $36.40. On that time frame, and not accounting for dividends, BHP shareholders have gone backwards.

Of course that metric is just as inadequate as the measures that the BHP board and its myriad remuneration consultants use to calculate their executives' labour.

You see, Marius Kloppers and BHP shareholders have been reaping the benefits of decisions taken 20 years ago. Most of the company's projects are mammoth mines with 30-year production lives. Yet the pay is struck over five-year performance benchmarks. By industry standards, this is a long time, and BHP is at the vanguard of governance. A huge mismatch remains though, and one which arguably puts shareholders at risk.

The pay is so large, and BHP the company is so large, that in order to make a big difference to his personal balance sheet Kloppers would have to really roll the dice with shareholder funds. And that he did, at the top of the market, via the takeover bid for Rio, the Pilbara merger and the Canadian potash deals. It is a good thing they did not come off, particularly the first Rio deal.

Klopper's undoing was the Chesapeake deal, a shocker in the short term. But who knows - US shale oil could be a winner in 20 years' time.

When the South African took over, BHP had a pristine balance sheet. It had no debt heading into the global financial crisis - and a suite of top-notch, low-cost, long-life assets. This was thanks to previous management. The China boom was thanks to good timing.

You can hardly point the bone at Kloppers for backing up the truck and loading in his riskless fortune. You could blame the board. They set the pay. But they are just doing what all the other big kids are doing in the playground at public-company-land. The issue is that size does matter, as it can induce higher risk to make a significant difference to pay.

In any case, NBN Co has a similar conundrum as BHP. We will not know for 20 years if the roll-out was right. Though, when copper wire came into play, there would have been plenty of people arguing we were doing just fine with telegrams.

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