Tesco tipped to head off pay revolt

TESCO is hoping that changes to its executive pay structure will be enough to head off a repeat of last year's shareholder rebellion at its annual meeting this week.

The UK's biggest supermarket chain came close to losing the vote on directors' pay packages last year, when 47 per cent of shareholders followed advice from lobby groups and either voted against the proposal or abstained.

This year Pirc has been the sole voice of dissent. The group, which advises pension funds and asset managers, recommended that shareholders vote down the plans on Friday because the targets for rewards are not challenging enough and the combined remuneration of Tesco's leadership is "excessive".

Tesco says it has consulted investors on its new proposals and received a "positive response".

Although it is not cutting the overall pay of directors, the world's third-biggest retailer has abolished executive share options and simplified four long-term incentive plans.

New chief executive Phil Clarke will receive a basic salary of 1.1m, less than his predecessor Sir Terry Leahy.

All executives will participate in the same plan, meaning that a separate scheme for Tim Mason, head of Tesco's US operation Fresh & Easy, has been scrapped.

Mason's pay was a particular source of investor ire at last year's AGM as shareholders questioned why he received 4.3 million, up 500,000 on the year before, when Fresh & Easy was racking up losses.

One investment adviser who had spoken to Tesco shareholders but did not want to be named said he thought most of the main bones of contention had been addressed. He said: "My sense is that there are still some issues, but it's unlikely there will be a rebellion."

He said the question of separate schemes for different directors had been of concern, as it potentially gave board members conflicting vested interests in the overall strategy of the firm, but that has now been addressed.

"It's been a long consultation process and it's been constructive," he said. "They have listened."