Tesco to crush revolt on 'excessive' reward

TESCO is expected to survive a shareholder revolt over executive pay this week despite a trio of investor groups slamming the retailer's "excessive" rewards for senior management.

Institutional shareholders are tipped to support the retailer in a vote on its remuneration report on Friday, helping it to overcome opposition from a number of small, private shareholders over bonuses and other long-term incentives for senior executives.

The retail giant has come under increasing pressure over pay for its outgoing chief executive Sir Terry Leahy and other high ranking directors after Pirc, the corporate advisory group, called the packages on offer "excessive" earlier this month.

Pirc's criticisms were echoed by CtW Investment Group, a US firm which works with pension funds that have stakes in Tesco, and RiskMetrics, which provides voting advice to UK pension funds. They both called on shareholders to vote against the remuneration report at this week's annual meeting.

Although Tesco's board is expected to face stiff questioning on Friday, analysts say they are unlikely to suffer the embarrassment of a defeat after the retailer secured a near 9 per cent rise in annual profits last year against what it described as "very difficult economic conditions". Tesco, now the world's third biggest retailer, also hiked its dividend by almost 10 per cent.

Tony Shiret, retail analyst at Credit Suisse, said he would be "amazed" if the remuneration report was voted down. "You get paid for doing a job and Leahy has done an amazing job," he said.

Philip Dorgan, analyst at Ambrian Partners, said: "At the end of the day Tesco has managed to retain its people and it has performed well."

Dorgan said Leahy and the board may face some uncomfortable questioning on Friday but he added: "It's not a Marks and Spencer-type situation where a company is underperforming."

Tesco narrowly survived a similar rebellion over management share options at last year's AGM but sources close to the firm say this week's vote is unlikely to attract the same level of opposition. Tesco insiders point out that the Association of British Insurers recently published a note supporting the firm.

Pirc argues that Leahy, who will step down next spring, was the second highest paid director in the FTSE 100's consumer services sector last year with a total package of 5.2 million.