Tesco hit by new shareholder revolt over pay for executives

Gideon Spanier
3 Jul 2009

Shareholder anger over executive pay boiled over today when investors holding a hefty 42% of the stock refused to back Tesco's decision to make its share option plan even more generous.

While more than 57% of investors' votes backed the motion at the supermarket giant's annual general meeting in Glasgow, it was a major revolt.

Just over 41% of votes were against while the remainder, fewer than 1%, abstained.

It is the latest in a run of shareholder protests against major companies.

Sir Stuart Rose last month surrendered part of his bonus at Marks & Spencer after shareholders voiced concerns, while only this week Argos owner Home Retail Group suffered a big protest vote with 35.6% rebelling against its bonuses.

At Shell, a massive 59% of investors voted against its pay deals, while Barclays is also coming under pressure.

Riskmetrics, a shareholder advisory group, had urged investors to reject the Tesco proposal because it would let departing or retiring executives exercise their share options over a three-year period instead of the current one-year period.

Former Tesco executives could benefit significantly if the share price rose. Riskmetrics had complained Tesco's move was "not in line with best practice".

The Association of British Insurers was also concerned about the change. A spokesman said: "Shareholders have made clear their views.

This is something the company needs to be mindful of and highlights the care remuneration committees have to exercise. Other companies considering such arrangements should take note of this strong signal."

Tesco's eight executive directors on the board hold 30.92 million share options, with chief executive Sir Terry Leahy having 12.59 million.

Those shares could be worth £44.2 million, but their value to Leahy depends on the exercise price he might pay.

A Tesco spokesman pointed out the share option scheme does not just affect senior executives but also many lower-ranking managers.

Tesco corporate and legal affairs director Lucy Neville-Rolfe said: "Because of the volatility of the markets, if they are retiring, or retiring for ill-health reasons - or even if there is redundancy - it means they lose out in the current market because they only have one year to exercise the options".

Shareholders did give their backing to directors' pay, with 92.7% approving the annual remuneration report.

Tesco's bonus awards for directors were also given the thumbs-up by 99% of shareholders.

Meanwhile, chairman David Reid today refused to discuss whether the retail giant was interested in buying Northern Rock following speculation of a possible Government sell-off before the election. "We never comment on rumours," he insisted.

About 40 protesters, some dressed as chickens, demonstrated outside the annual meeting against some of Tesco's meat suppliers and their treatment of workers.

But 89% of investors failed to back a motion proposed by trade union Unite on those workers' rights.

Unite deputy general secretary Jack Dromey, husband of Labour deputy leader Harriet Harman, said Leahy should not ignore his call.

"The exploitation of migrant agency workers and undercutting of indigenous workers divides workplaces, damages community social cohesion and fuels racism," said Dromey. Tesco shares rose 11⁄2p to 352p.