Tesco today caved in on its attempts to hold back on severance payments to its former boss and finance director.
The supermarket giant had previously suspended the payouts to former boss Philip Clarke and his right-hand man Laurie McIlwee pending a probe into its recent £263m accounting scandal.
Sliding sales saw Clarke replaced in September by former Unilever executive Dave Lewis, but he was still being paid his £95,000-a-month full salary under arrangements for him to assist with “transition” until the end of last month.
McIlwee had quit in April.
Tesco said in October that it had frozen the pay-offs as an internal probe revealing the extent of an accounting blunder involving rebates to suppliers highlighted practices going back a number of years.
The fall-out from the affair saw chairman Sir Richard Broadbent announce his departure and eight executives suspended, as well as a shake-up of the group’s commercial practices that partly caused a £500m profit warning in December.
It is being investigated by the Serious Fraud Office (SFO).
But the grocer said today in a statement that it had decided to reinstate Clarke and McIlwee’s payments.
“The company has taken legal advice and has concluded that it does not have the basis for continuing to withhold the payments,” it told investors.
“Accordingly, the board considers that defending costly claims for the payments would not be in the company’s best interests.”
Tesco has agreed to pay Clarke £1.22m and McIlwee £970,880 under their “separation agreements” as it was contractually committed to do so unless it could prove gross misconduct.
However, the firm said it reserved the right to try to recover the cash in the future “if new information were to come to light”.
In addition to the cash pay-outs, Clarke and McIlwee are in line for deferred share awards worth up to £6.4m and £4.1m at the current share price.
The announcement comes days after Tesco began telling 2,000 head-office staff that they were to lose their jobs under a plan to slash costs while it also published the location of 43 loss-making stores to close, threatening a another 2,000 jobs.
Lewis’ scheme also includes the shelving of plans for 49 new stores, shutting Tesco’s final salary pension scheme and disposing of its loss-making Blinkbox operation selling online videos.
Asked about the group’s decision to hand over the money while SFO inquiries continue, David Cameron’s official spokesman said: “The Prime Minister’s and government’s job is to have clear, robust rules that enable the authorities – the SFO in this case – to undertake the investigatory work that they believe is right.
“As for individual decisions that companies take, that will be a matter for them.
“Under this government, we have the appropriately funded investigatory authorities to get to the bottom of issues around which they have concerns.”