Tesco has overhauled its pay policy for top managers in a bid to prevent a repeat of last year’s shareholder revolt, just as a new report revealed that chief executive renumeration was out of kilter with share prices and employee pay.
The changes, which were revealed in the supermarket chain’s annual report, will see it eradicate executive share options and move all of its top managers under the same long-term incentive scheme by amalgamating four previous ones.
They will now be rewarded with shares of “comparable expected value”, which are deferred for three years and will be subject to a claw back provisions for the first time. The provisions will enable the firm’s renumeration committee to scale back deferred share awards in the event that results are “materially misstated”, the report said.
The move means that US boss Tim Mason will no longer enjoy a beneficial incentive scheme that was the subject of particular ire at the company’s annual general meeting last year. US investors were especially unhappy with his award, complaining that it was excessive given the large losses being racked up by Tesco’s US start-up, Fresh & Easy.
The retailer’s new chief executive Phil Clarke has also had his base salary pruned to £1.1 million under the new scheme, some 23% less than his successor Sir Terry Leahy. But he could still earn an annual long-term bonus of up to 275% of this salary, a further 250% through short-term bonuses and 350% as a result of “exceptional circumstances” under the company’s performance share plan.
The move came as research by pay consultancy MM&K and corporate governance group Manifest revealed that the chief executives of FTSE 100 companies saw their median earnings soar by 32% last year. Such growth compared with a mere 7% increase in the FTSE market itself and median growth of only 2% in employee wages – half the rate of inflation, which meant an effective pay cut for most.
The figures were even more stark among bosses at the top 25 companies, who saw their awards rise by more like 86%. The situation was that, although chief executive salaries increased by a median of only 2%, total earnings were boosted by a 70% rise in pay-outs under long-term incentive plans and share option schemes.
But the report also revealed that, while bosses’ total pay had quadrupled over the last 12 years, share prices had stayed fairly static, which meant that renumeration bore little relation to either performance or shareholder value.