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Last Updated: Friday, 13 June, 2003, 16:21 GMT 17:21 UK
Tesco wins pay battle
tesco CEO Terry Leahy
Terry Leahy's employment contract is under fire
Tesco shareholders have voted through an executive pay deal, despite signs of discontent.

The policy was passed at the retailer's annual general meeting with the support of only 59% of those voting.

The remaining shareholders either abstained in protest, or voted against the policy.

Some investors are angry about the two-year rolling contracts for chief executive Terry Leahy and other board members, which offer severance packages equivalent to double their annual salary.

However, results on Friday showing that Tesco's record strong growth remained intact appeared to persuade the majority of shareholders to approve the pay deals.

Contract clash

The National Association of Pension Funds (NAPF), whose members own about one-fifth of the shares listed on the London Stock Exchange, had advised investors to abstain from voting on the re-election of three Tesco board members.

It is pushing for the supermarket group to re-draft its board members' terms of employment so that all are employed on a 12-month notice period.

Shareholders argue that such contracts maximise "rewards for failure" by guaranteeing big pay-offs for directors who are forced out because the company is performing poorly.

The Association of British Insurers, which also represents major institutional investors, joined the chorus of criticism against the supermarket's two-year contracts, saying they were "clearly in breach of our guidelines".

Tesco has said it will appoint new directors on one-year contracts, but will not renegotiate the employment terms of its existing board members.

"If they accept the principle, it would make sense for them to renegotiate the existing contracts," said Stuart Bell, research director at shareholder lobby group Pensions Investment Research Consultants.

Performance test

The relatively large number of abstentions and no votes (about 17% of the votes) will signal to Tesco that its shareholders' patience is wearing thin.

However, the vote has fallen short of last month's landmark rebellion against the pay policies of drugs giant GlaxoSmithKline (GSK).

A slender majority of GSK shareholders voted against a pay package which would have entitled chief executive Jean-Pierre Garnier to a pay-off of up to 22m.

It was the first time that shareholders in a British company had rejected its remuneration policy.

Other blue-chip British firms such as Barclays, Reuters and Royal & Sun Alliance have also faced significant levels of shareholder dissent over executive pay this year, with investor resentment fuelled by falling share prices and weak profits growth.

The reason why Tesco avoided a full-scale revolt was likely to have been its exceptional performance in recent years, making the accusation that it is rewarding its directors for failure harder to stick.

Strong growth

Meanwhile, in a trading statement issued on Friday, Tesco reported strong first quarter sales growth of 15.1% as it continues to steal customers from weaker rivals.

UK like-for-like sales, which strip out the effect of new store openings, were up 5.8%, although the impact of price cuts took 0.3% off the figure.

Analysts had forecast like-for-like growth of 4% to 5%.

The group figure was boosted by international sales which increased by 28.4% with total UK sales up 12.3%.

Investors welcomed the figures, pushing Tesco shares up 3.2% to 211.5p by the close of trade.




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SEE ALSO:
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Tesco buys Japanese retailer
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Tesco targeted over 'fat cat' pay
20 May 03  |  Business
Glaxo defeated by shareholders
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Shareholders put GSK under pressure
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RSA hit by 'fat cat' pay revolt
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Glaxo backs down on CEO pay deal
26 Nov 02  |  Business


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