Tesco Outgoing CEO’s Pay Package Gets Massive Shareholder Rebuke

(Bloomberg) -- Tesco Plc received an embarrassing blow as two-thirds of its shareholders voted against the pay report that grants outgoing Chief Executive Officer Dave Lewis 6.4 million pounds ($8 million) in total compensation.

Just over 67% of investors took issue with remuneration at Tesco’s annual shareholder meeting Friday. The non-binding shareholder vote is only advisory, so it will not derail the payments to Lewis.

The vote is a sour note for the end of Lewis’s legacy at the grocer. The outgoing CEO has been credited for turning around the company with increased profits and cash generation. Shareholders are in line for a 5 billion-pound special dividend this year following the sale of Tesco’s operations in Malaysia and Thailand.

Shareholders took issue with Tesco changing the benchmark it used to measure corporate performance, alleging the change flattered the retailer’s performance.

The retailer removed online-grocery company Ocado Plc from the peer group used to gauge Tesco’s progress. Ocado’s share price rocketed in the past year and removing it increased Lewis’s potential bonus from 800,000 pounds to 2.4 million pounds.

Ocado shouldn’t be in the peer group as it has transformed itself into a technology company licensing its software rather than a pure grocery business, Tesco said in its annual report.

Institutional Shareholder Services Inc. and Glass Lewis & Co. had both recommended that investors vote against the pay report. ISS said that “regardless of the semantics, it is considered a matter of poor practice to revise the terms of the Long Term Incentive Plan after the performance conditions are set, except in truly exceptional circumstances.”

Glass Lewis said in its note to shareholders that before Ocado was removed, Tesco had underperformed its rivals by 4.2% over three years. However, after it removed the online grocer, it outperformed the group by 3.3%.

A Tesco spokesman said it was “disappointed” with the vote but “we recognize, however, that a significant number of shareholders had concerns with the principle of the committee’s adjustment” to the peer group. He said Tesco would continue to engage with shareholders on their concerns.

©2020 Bloomberg L.P.