Tesco risks losing vote over CEO's £6.4m pay deal - report

Tesco is in danger of suffering a shareholder vote against its remuneration report over departing boss Dave Lewis's £6.4m annual pay, according to a report.

Unhappy shareholders are lining up to vote against the pay report at Tesco's annual general meeting on 26 June and a majority against it is possible, Sky News reported. The outcome is in the balance with many votes not yet cast, Sky said.

Lewis's bonus was inflated from £800,000 to £2.4m when Tesco removed Ocado, whose shares quadrupled in the three years to the end of February, from a comparator group of companies. Tesco argued Ocado is increasingly a technology company and not a retailer after shifting its focus to selling know-how to retailers around the world.

A number of shareholders are sympathetic to Tesco's position but are likely to vote against Lewis's package anyway, Sky said. CEO pay is back in the spotlight with hundreds of thousands of workers losing their jobs and many others taking wage cuts.

Tesco had already attracted criticism for increasing its dividend while taking almost £600m of government support during the Covid-19 crisis. Investors have told companies to be careful when making judgements on pay and dividends during a time of national emergency.

A Tesco source told Sky Ocado's ballooning share price gave it too much weight in the comparator group, rising from 10% to more than a third over three years despite only holding about 1.5% of the UK grocery market.

Some shareholders are reluctant to oppose Lewis's deal as he prepares to leaves after bringing Tesco back from the disastrous state he inherited six years ago. Lewis surprised investors by announcing his resignation in October.

Shareholder proxy advisers ISS and Glass Lewis urged investors to oppose the pay report. The vote is non-binding but a defeat would be highly embarrassing. If Tesco just scraped through it would be left in a difficult position with unhappy powerful investors.

ISS told Sky the argument about Ocado's change of focus did not stand up to scrutiny.

"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. That standard does not appear to be met in this case."