TELSTRA GROUP LIMITED — Remuneration Information 2007

Aug 8, 2007

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9 August 2007

The Manager

Company Announcements Office Australian Stock Exchange 4[th] Floor, 20 Bridge Street SYDNEY NSW 2000

Office of the Company Secretary

Level 41 242 Exhibition Street MELBOURNE VIC 3000 AUSTRALIA

Telephone 03 9634 6400 Facsimile 03 9632 3215

ELECTRONIC LODGEMENT

Dear Sir or Madam

Telstra sets tough performance hurdles

In accordance with the listing rules, I attach a copy of an announcement for release to the market.

Yours sincerely

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Douglas Gration Company Secretary

Telstra Corporation Limited ACN 051 775 556 ABN 33 051 775 556

185/2007

9 August 2007

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Telstra sets tough performance hurdles

Telstra’s Board has developed a new incentive plan for senior managers that sets tough multi-year performance hurdles aligned to successful transformation of the company and generating returns for shareholders.

The Board will also require senior managers to hold up to 100 per cent of their fixed remuneration in the form of Telstra shares.

Telstra Chairman, Donald McGauchie, also today announced that the Board had renewed contracts with the Chief Executive Officer, Sol Trujillo, and the Chief Operations Officer, Greg Winn.

“These announcements will build on the success so far in transforming Australia's most successful telco into a leading global media-comms company, because they align the financial interests of senior managers with the long-term wealth of shareholders,” Mr McGauchie said.

“I am very pleased that Greg Winn has renewed his contract and will continue to drive the transformation of the company.”

The senior executive long-term incentive plan links incentives payments to demanding hurdles aligned to the company’s transformation, but all incentives are conditional upon shareholder wealth increasing by around $25 billion over the period July 2006 to July 2010 –

• 118 million share options have been allocated to approximately 260 senior managers. The options represent a right to acquire a share in the future, subject to meeting certain performance hurdles. Managers’ benefits will not equal the whole share price, but only any extent to which the prevailing share price exceeds the exercise price.

• The options will not vest until June 2010 according to performance of the company against tough transformation and financial targets including revenue, return on investment, IT transformation, next generation network transformation, total shareholder return and EBITDA.

• All options will lapse unless total shareholder return, measured by share price growth and dividends, has increased by 55% or approximately $25 billion over the period July 2006 to June 2010.

“Importantly, executives will only benefit if our shareholders prosper. No participant in the senior executive plan will receive a single dollar under this plan unless they first collectively add at least $25 billion to the long-term wealth of Telstra shareholders throughout the life of the plan and achieve milestones in the company’s financial performance and the transformation,” Mr McGauchie said.

“It would be extraordinarily beneficial for shareholders if any executive achieved their full entitlement under this scheme, because the company will have beaten top-end hurdles that are substantially higher than our long-term management objectives and market expectations,” Mr McGauchie said.

Mr McGauchie said the plan would mean extraordinary performance would be required for executives to enjoy potential benefits.

“For instance, if our executives grow shareholder wealth by $25 billion and deliver on all the transformation targets, they will potentially receive only one-quarter of their maximum entitlement,” Mr McGauchie said.

“To achieve one-third of their entitlement, senior managers will need to add more than $40 billion in shareholder value, and meet every target for the transformation, and also meet all of the company’s longterm management objectives disclosed to the market and set out in the T3 prospectus.

“To achieve the maximum possible allocation, they will need to add more than $50 billion in shareholder value, and meet every goal for the transformation, and meet all of the company’s long-term management objectives, and also sustain multi-year EBITDA performance.

“Even in the event of full payout, Telstra’s shareholders will receive something in the order of 99 cents for every dollar of value created.

“Telstra is undertaking one of the most significant and challenging transformations of any telecommunications company anywhere in the world and we need to be able to attract and retain top talent in this global talent pool.

“The new incentive plan means that as the global telecommunications industry evolves and other companies want to follow the transformation lead taken by Telstra, our key executives with a significant stake in the company’s future success will be more likely to stay with Telstra over the next few years which are crucial to the transformation,” Mr McGauchie said.

The new plan was developed after the Board worked with three internationally recognised remuneration advisory firms to achieve a balance between shareholder return and management reward.

Chief Executive Officer’s contract

There is no change to the CEO’s fixed remuneration. Short- and long-term incentives available to the CEO will, as with other senior executives, depend on meeting more demanding performance targets –

• Fixed remuneration remains at $3 million including superannuation.

• Short-term incentives are potentially $6 million and are divided equally between cash and equity. They are dependent on performance against transformation and financial hurdles set and monitored by the Board.

• The fixed and STI components will not be reviewed until June 2009.

• 20,689,656 share options were allocated for the long-term incentive covering the period 2006/07 to 2008/09 – the extent to which they may be exercised depends on earning and shareholder returns.

“Mr Trujillo’s incentives depend on exceptional performance and shareholder returns,” Mr McGauchie said.

“The Board believes the long-term incentive scheme and executive contracts announced today are overwhelmingly in the interests of shareholders because they further align the interests of senior managers and shareholders, boost our ability to attract and retain high-performing talent in a global market, and drive a high performance culture,” Mr McGauchie concluded.

Media contacts – Andrew Maiden – 02 9298 5259 or 0428 310 700 Jeremy Mitchell – 02 8293 2340 or 0438 205 416

Telstra’s national media inquiry line is 1300 769 780 and the Telstra Media Centre is located at: www.telstra.com.au/abouttelstra/media

TELSTRA’S TRANSFORMATION LONG-TERM INCENTIVE PLAN

Why did Telstra review the long-term incentive scheme ?

• Telstra is undertaking one of the most significant and challenging transformations of any telecommunications company anywhere in the world. As we deliver on transformation milestones like the NextG[TM ] and Next IP[TM] networks, the performance of key personnel is attracting attention among global providers. This means Telstra needs to have potential rewards that attract and retain top talent in highly competitive global markets.

• The Telstra transformation strategy is a massive rebuilding of the company. Given the significant challenge required to deliver, this plan was developed by the Board to provide clear and strong alignment of the transformation strategy, shareholder value and executive reward.

What are the main features of the plan ?

• More demanding hurdles – The long-term incentive scheme has been revised to include more demanding stretch targets aligned to the transformation. Executives have been allocated share options that may vest progressively over the transformation period. However, all vested share options will automatically expire at the end of 2009/10 unless total shareholder value – measured by share price and dividends – has increased by 55% (currently around $25 billion) from a base at 1 July 2006. If that ‘Gateway’ hurdle is met, the exact number of options that may be exercised as shares will vary depending on annual performance against revenue, return on investment, IT transformation, Next Generation network transformation, total shareholder return targets and EBITDA results. If the gateway hurdle is not achieved the executives will not receive any reward through this plan.

• Compulsory share ownership – The company’s long-term senior managers at director-level and above will, by the end of 2011/12, be required to hold Telstra shares worth between 50% and 100% of their fixed pay, depending on their seniority. To assist the most senior executives (GMDs) to reach this target, one-quarter of all short-term incentives will be paid as shares and held in trust until they reach this target.

Required shareholding	Group Managing Director	Executive Director	Director
(% of fixed rem)	100%	75%	50%

• Tougher change-of-control provisions – A clause entitling the board to consider early notification that the long-term incentive plan options may be exercised will be updated so it applies in the case of 30%, rather than 15%, of publicly-traded shares changing control. This is appropriate given T3 increased the proportion of publicly-traded shares from 48.2% to 83.1%. Importantly, a change-of-control in 30% of shares would not automatically trigger this entitlement – it would merely enable the board to consider whether it was appropriate to change the plan. Only a change in control of more than 50% of shares would automatically trigger the entitlement.

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What are the performance hurdles ?

Performance measure	Measure	Consequence
TSR Gateway	-Total shareholder return must be 55% (ie a compound annual growth rate of annual growth of 11.5%) from 1 July 2006 up to the end 2009/10.	‘Sudden death’ - unless this test is satisfied, NO benefit is received irrespective of whether other measures are achieved. This would require an increase in shareholder value of some $25 billion.
IT Transformation	-Implementation of a major overhaul of Telstra’s systems; and – A reduction in number of systems -Time-based	-Options may vest at the end of year 2, 3 and 4 of the plan depending on whether the targets are met or exceeded. -Greater emphasis on these measures in year 2 of the transformation
Next Generation Network Transformation	- Re-building of major platforms - Migration of customers to the new platforms. -Time and volume-based	-Options may vest at the end of year 2, 3 and 4 of the plan depending on whether the targets are met or exceeded. -Greater emphasis on these measures in years 2 and 3 of the transformation
Revenue growth	-Growth in sales revenue	-Options may vest at the end of year 2, 3 and 4 of the plan depending on whether the targets are met or exceeded. -Greater emphasis on these measures in year 2 of the plan.
ROI	-Return on investment	-Options may vest at the end of year 3 and 4 of the plan depending on whether the targets are met or exceeded. -This measure is in the second half of the plan so that executives are only rewarded for this element where they derive the returns for shareholders, as a result of spending significant amount of shareholder funds on new systems and network platforms.
TSR	-Compound growth of total shareholder return (ie, share price plus accumulated dividends)	-Options may vest at the end of year 2, 3 and 4 of the plan depending on whether the targets are met or exceeded. -This is above and beyond the TSR “Gateway” measure.

Telstra is disclosing these triggers to the extent it can without revealing commercially sensitive information to competitors or the market. The triggers have been set by the Board in advance and are monitored by the Board. They are consistent with the transformation plan and are at least as demanding as the long-term management objectives, which have been disclosed to the market and were contained in the T3 prospectus.

How are benefits allocated ?

Long-term incentives are allocated in the form of share options. Options are a right to acquire a Telstra share if certain conditions are met. Managers’ benefits will not equal the whole share price, but only any extent to which the share price has increased since the options were allocated. Options are preferred over performance rights because they only permit executives to benefit if share prices increase and the gateway TSR hurdle is passed.

The exercise price for these options is calculated in the same way as previous Telstra plans. It is based on the volume-weighted average price over the five working days after the announcement

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of the annual results in the relevant year. Subsequent tranches will be issued using the same formula.

This was first disclosed to shareholders by the Chair of the Remuneration Committee at the Telstra AGM on 14 November 2006. Subsequent tranches will be issued using the same formula.

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COMPONENTS OF THE CHIEF EXECUTIVE OFFICER’S REMUNERATION

Mr Trujillo’s contract has been revised to contain new provisions to reward him if he achieves demanding performance hurdles. His contract is determined by the Board and evaluated by the Board.

Component	Payment ($A)	Comment
Fixed remuneration	Remains at $3 million including superannuation.	Ongoing fixed remuneration as prescribed in his employment contract.
Short-term (annual) incentive payment – cash and equity	Up to $6 million divided equally between cash and deferred shares, and dependent on performance against transformation and financial hurdles set and monitored by the Board.	Subject to achieving annual performance objectives. Deferred shares are allocated based on the volume weighted average price over the 5 days following the announcement of the annual results.
	Other benefits:
Long-term incentive (paid once at conclusion of plan)	Tranche one (for 2006/07) comprises 10,344,828 share options – performance will be measured at 30 June 2008. Tranche two (for 2007/08) comprises 5,172,414 share options – performance will be measured at 30 June 2008. Tranche three (for 2008/09) comprises 5,172,414 share options – performance will be measured at 30 June 2009.	Share options are allocated at the volume weighted average price (VWAP) over the 5 days following the announcement for the relevant year. To exercise these options, Mr Trujillo must buy them at the VWAP, so he benefits only to the extent the share price increases. These are allocated up-front but are subject to certain conditions – (1) no shares may be exercised unless total shareholder wealth has increased at an average of 11.5% p.a. in the performance period. (2) the number of vested options will depend on performance against demanding targets set and monitored by the Telstra Board.

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